Research.LeutholdGroup

The December 2018 stock-market low was the second most expensive among historical “major market lows.” The most expensive low was October 1998. The S&P 500 corrected -19.8% in late 2018, and by -19.3% in mid-1998. In the current post-correction rebound, the stock market’s breadth is more fractured than at the same stage in the rally following the 1998 correction.

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In the first three months of 2019, the S&P 500 surged 13%, its best quarterly performance in nearly ten years. This is strikingly similar to the rally of 1999—which may have been the most speculative in U.S. history. 

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Based on standard technical retracements, the best-case S&P 500 bounce “should” have been exhausted in the range of 2,700-2,750. Less than three months since a 19.8% close-to-close decline, the market has rallied to within reach of a new high, a move which would commemorate the bull market’s 10th anniversary.

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The Research Summary is now available for download on our website for February 2019. The Research Summary provides a synopsis of The Leuthold Group's monthly market outlook.

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At some point in his career, famed stock trader Jesse Livermore ceased using the terms bull and bear, opting instead to describe trends in terms of “lines of least resistance.” He felt the change in terminology enabled a more flexible, unbiased mindset.

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The bears gorged themselves in the two weeks leading up to Thanksgiving and the S&P 500 closed at a correction low the day afterward. “Christmas” arrived immediately thereafter, with a six-day gain of 6%. But that was followed by a two-day collapse on December 4th and 6th, which undercut the post-Thanksgiving low on an intraday basis.

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We wrote in October’s Green Book that “many once reliable seasonal market patterns have been out of sync in recent years.” The market gods punished us for having the audacity to write such a thing (and during October, of all months!), taking the S&P 500 down to within 0.1% of “correction territory” at the October 29th low. But the punishment outside the U.S. commenced long beforehand, and last month’s losses drove several foreign market measures into bear territory. We expect U.S. blue chips to follow.

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