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Inside The Stock Market ...trends, cross-currents, and outlook

Dec 06 2019

How Will It Be Remembered?

  • Dec 6, 2019

A way to gain perspective on the present is by trying to view it from the future. Ask yourself, “What are the signs of impending decline, now ignored by investors, that will one day be memorialized by the same investors as the most obvious in retrospect?”   

Dec 06 2019

A Tough Tape To Read

  • Dec 6, 2019

Over the nearly two years since the stock market’s “momentum” peak in January 2018, the S&P 500 has gained less than 9%, while the Value Line Arithmetic Composite is unchanged. Mid Caps and Small Caps have made no upside progress during this period and most foreign markets are down.

Dec 06 2019

Are Stocks And The Economy Disconnected?

  • Dec 6, 2019

The consensus among market pundits is that a U.S. recession will be averted and, as a consequence, domestic stocks remain the best game in town.

Dec 06 2019

Lagging From Behind?

  • Dec 6, 2019

As Yogi Berra might have quipped, it’s not just the leading indicators that are lagging… the lagging ones are, too.

Dec 06 2019

A “Best Case” Bear Scenario?

  • Dec 6, 2019

We intentionally curtailed our discussion of stock market valuations the last few months to allow the “dead horse” to recover from the thrashings administered in recent years. Now we’re rested, refreshed, and ready to deliver a few more lashes.

Dec 06 2019

Risks Still High In The “Median” Large Cap

  • Dec 6, 2019

The relative domination of Mega Caps might leave the impression that valuation of the “typical” (or median) Large Cap stock is reasonable. It’s not. The fall rally leaves all major valuation ratios for the median S&P 500 stock in the top decile of the 30-year history, and above the levels prevailing at the September 2018 market high.

Dec 06 2019

More Good News For Small Caps

  • Dec 6, 2019

Our call for improved relative performance in Small Caps received another boost in November, when VLT Momentum for the S&P SmallCap 600 confirmed the prior month’s “low-risk” BUY signal on the Russell 2000.

Dec 06 2019

A New Take On Small Cap Valuations

  • Dec 6, 2019

For valuation work, we’ve traditionally favored the 1,200 company Leuthold Small Cap universe over the S&P SmallCap 600 because we get almost a full additional decade of perspective. But figures for the latter shed extra light on just how significant the revaluation in Small Caps has been.

Dec 06 2019

No Place Like Home For The 2010s

  • Dec 6, 2019

We thought we’d get a jump on all the “End of the 2010s” retrospectives you’re sure to see next month. Though not quite yet the official end of the decade, the changing of the “tens” digit definitely has a certain gravitas to it.

Dec 06 2019

Capex Beneficiaries “Delivered,” But Only On Price Action

  • Dec 6, 2019

With optimistic views on capex in late 2017, we built a thematic group of companies that appeared to be potential beneficiaries of higher spending going forward. This group has outperformed the market; but, the capex trend is disappointing and quite concerning.

Nov 07 2019

Can New Reins Take Hold Of An Old Bull?

  • Nov 7, 2019

Three months ago, Large Cap Growth and Momentum were the winning ways to play the market; the long-time resiliency of these entrenched leaders was a cornerstone of the bullish case. Suddenly it’s Value and Deep Cyclicals leading, anything possessing Momentum, of late, has turned toxic. Ironically, this “new” leadership is now the foundation for the bullish reasoning.

Nov 07 2019

Monetary Musings

  • Nov 7, 2019

Among six major monetary gauges, five are now graded bullish, compared with just three a few months ago, and zero at the end of 2018.

Nov 07 2019

VLT Complicates The Market Puzzle

  • Nov 7, 2019

At October’s close, a long-term BUY signal was triggered on the Russell 2000. The fact that some market segments are triggering “oversold BUYS” when blue chips are at record highs speaks volumes about the internal disparities that have developed during the last few years. The Russell BUY signal is not inconsistent with our belief that the action since the January 2018 peak remains part of a lengthy cyclical topping process.

Nov 07 2019

Back To Y2K?

  • Nov 7, 2019

The bull market took out another old record last month when the S&P 500 topped the cumulative total return of the 1949-56 upswing. The total return since March 9, 2009, is now 468%. Since the highs of March 2000, the S&P 500 cumulative total return is actually a few basis points behind U.S. 10-year Treasury bonds.

Nov 07 2019

A Short-Term S&P Top?

  • Nov 7, 2019

The short-term path for equities “looks” clearer than at any point in 2019, with economic data having stabilized a bit in the last few weeks, the Fed having cut rates again and resumed balance sheet purchases, and some type of trade deal finally looking more tangible than a 2:00 a.m. Tweet.

Nov 07 2019

Simple Bond Model Says “SELL”

  • Nov 7, 2019

In our minds, the big story is not the nominal new highs in the blue chips, but rather the rapid changes now occurring on both an “intra-market” and “inter-market” basis. In the case of the latter, we have an important new signal from a simple correlation model we developed earlier this year.

Nov 07 2019

Jury Is Still Out On EM

  • Nov 7, 2019

Emerging Market stocks have been swept up in the last month’s rally in all things cyclical and high beta. Nonetheless, the MSCI Emerging Markets Index is still down marginally from its level coinciding with its April 30th VLT BUY signal.

Nov 07 2019

Labor Cost Observations

  • Nov 7, 2019

We take a look at different data sets reflecting labor costs. The main finding is that using Unit Labor Cost as the measurement for the true cost suggests that the labor market is very tight in terms of affordability for businesses.

Oct 05 2019

The Last “Spoos” To Drop?

  • Oct 5, 2019

For many months, we’ve argued that global stocks have been tracing out a major cyclical top. But the global stock market “tape” has narrowed so much that it’s really only the U.S. blue chips that are left to do the tracing.

Oct 05 2019

“Quant Quake” But No Market Quake

  • Oct 5, 2019

Value, High Beta, and Small Cap stocks all captured a few rays of sunlight for the first time in a long while. It’s too early to tell if last month’s leadership U-turns can be sustained, but major market trends are the most susceptible to reverse during cyclical bear markets.

Oct 05 2019

Where Would You Rather Be?

  • Oct 5, 2019

On October 3rd, the S&P 500 briefly traded below the high it made in January 2018 before reversing to close the day higher.

Oct 05 2019

Small Cap VLT BUY: Not Quite...

  • Oct 5, 2019

Small Caps came tantalizingly close to activating a major VLT BUY signal in September, with the Russell 2000 closing less than a half percent below the trigger level. A new bull signal from this indicator wouldn’t “fit” into our market and economic narrative, but we won’t sweep it under the rug if it occurs.

Oct 05 2019

Making Money In The Money-Losers

  • Oct 5, 2019

Despite an economy operating “beyond” full employment for the past seven quarters, more than one-fourth of the companies in the Leuthold 3000 universe are losing money on a 12-month trailing basis. The Fed has subsidized what’s truly become irresponsible behavior.

Oct 05 2019

The Trend Is Your “Fiend!”

  • Oct 5, 2019

Over the last year of market swings, we’ve tracked the horrific performance of what had previously been a solid long-term system for timing the S&P 500, the 10-month moving average crossover system. In the last 12 months, this generally low-risk approach has generated a total return loss of 13.74%.

Oct 05 2019

More Trends We Don’t Find Friendly…

  • Oct 5, 2019

The yield curve’s ten-month moving average inverted in September, hence the yield curve inversion can no longer be dismissed as transitory; the Boom/Bust Indicator remains below its descending 10-month moving average, confirming economic weakness predicted by the yield curve; and, the “Present Situation” component of September’s Consumer Confidence survey slipped below its 10-month moving average for the third time in 2019.

Oct 05 2019

More Yield Curve Musings

  • Oct 5, 2019

The U.S. yield curve inversion has lasted long enough that even a few economic optimists now concede it will ultimately prove significant.

Oct 05 2019

Last Bastion Breaking Down?

  • Oct 5, 2019

We’ve been expecting weakness in the manufacturing sector to spread to the service economy, but were not prepared for the nearly four-point drop in the latest ISM Non-Manufacturing Composite. We don’t want to overplay a single monthly reading from an historically volatile report, but the Non-Manufacturing Price Index spiked despite the drop in New Orders.

Oct 05 2019

Credit Cracking?

  • Oct 5, 2019

One of the key pillars of the bullish case has been the supposedly “benign” trend in corporate credit. While that’s been true for holders of the popular junk bond ETFs (HYG and JNK), the broader credit picture is not as reassuring.

Oct 05 2019

Quality Stocks’ Stronghold

  • Oct 5, 2019

Despite higher volatility, market performance is still up in the high double-digits YTD. Interestingly, as our index of High Quality Stocks versus Low Quality Stocks shows, High Quality is prevailing in terms of relative performance.

Sep 07 2019

We’re All Economists Now!

  • Sep 7, 2019

It’s now been more than 19 months since global stocks peaked on January 26th, 2018. Those lucky enough to have been invested solely in the S&P 500 and to have held on for the volatile ride have a 3.7% gain to show for it. Nice going.

Sep 07 2019

More Extreme Than 1999?

  • Sep 7, 2019

We noted that the December 2018 stock market low was the second most expensive in history, second only to that of October 1998. Similarities between 2019 market action and the 1998-99 rebound remain eerie. Something isn’t right, and it’s not bullish.

Sep 07 2019

ISM Shows This Is A Different Kind Of Cycle

  • Sep 7, 2019

The manufacturing economy has thrown us a deflationary curve in 2019: The Price Index broke down in advance of New Orders, a reversal of the textbook recession/recovery sequence between these two measures.

Sep 07 2019

Monetary Madness

  • Sep 7, 2019

We always do our own work and draw our own conclusions. Lately, though, we’ve wondered what the late “Monetary Marty” Zweig might say about the stock market’s current liquidity backdrop.

Sep 07 2019

Pricing In “Peak” EPS

  • Sep 7, 2019

A recent theme in our valuation work is that we no longer need to assume a full-blown “reversion to the mean” to illustrate current U.S. stock market risks: Even a reversion to “old” bull market highs in ratios like S&P 500 Price/Sales, Price/Cash Flow, and Normalized P/E would result in bear-sized losses.

Sep 07 2019

“Too Smooth” Of A Ride?

  • Sep 7, 2019

While investors in Value, Small Caps, and especially foreign stocks might beg to disagree, a key MTI technical measure suggests this decade’s stock-market ride has been almost entirely “pain free.”

Sep 07 2019

Small Caps: “What If?”

  • Sep 7, 2019

The Russell 2000 is the most important major index on the cusp of a new BUY signal. Our best guess is that Small Caps will still trend lower for now, creating a buying opportunity in the months ahead.

Sep 07 2019

Commodity Stocks: “Low” But Not Cheap

  • Sep 7, 2019

A general rule of thumb for thematic equity investors is that the dominant leadership sectors and groups in a given bull market normally don’t repeat as leaders in the subsequent bull.

Sep 07 2019

A Final Warning

  • Sep 7, 2019

This Stock Market section’s unifying theme has been that of an historically two-tiered market, one in which Domestic, Large Cap, Growth, Consumer-oriented, and Low Volatility stocks have reigned supreme.

Sep 07 2019

Worrisome Profitability Trend Among Small Cap Companies

  • Sep 7, 2019

Despite a historic economic expansion during the past decade, there is an ever-increasing number of companies that are finding profitability has become harder to achieve.

Aug 07 2019

Are You Really A Contrarian?

  • Aug 7, 2019

The need to sound contrarian has become a borderline obsession among market pundits. Media opportunities for talking heads have exploded in the last decade, forcing those who hold the safest consensus views to falsely portray themselves as lonely and misunderstood market mavericks.