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

Sep 05 2020

Keep Safe

  • Sep 5, 2020

A truly skilled writer would attempt to build up a little suspense before revealing the central theme of this section. But in this makeshift world of sixty-game baseball schedules and seven-inning doubleheaders, who has the time or patience for that?

Sep 05 2020

Musings On A Manic Market

  • Sep 5, 2020

Officially, those quick to pronounce the move off March lows as a new bull market have been proven correct with new S&P 500 all-time highs. Fundamentally, though, there’s enormous risk in Large Cap valuations, regardless of where one believes we are in the economic cycle.

Sep 05 2020

The Tab For “Freebies” Keeps Escalating

  • Sep 5, 2020

There’s an underlying faith that bureaucrats at the Fed and Treasury will keep good and bad businesses, alike, afloat—and overvalued. We’re still trying to unearth a single historical analog that merits such confidence.

Sep 05 2020

Foreign Stocks Party Like It’s The “2010s”

  • Sep 5, 2020

The most likely catalysts for improved relative performance of foreign stocks would be: (1) a bear market; (2) a recession; and, (3) a major downturn in the U.S. dollar. This year has supplied all three, yet the relative strength ratios of most foreign equity composites continue to grind lower as if it’s “business as usual.”

Sep 05 2020

Does An Economic Rebound “Inoculate” The Stock Market?

  • Sep 5, 2020

The 2020 decline exhibits a strong resemblance to the “incomplete” bear market of March 2000-September 2001—in that neither decline sufficiently deflated the extreme valuations of the preceding bull, and each was followed by an immediate rebound in reliable valuation measures to top decile levels.

Sep 05 2020

Can Money Growth Trump All Else?

  • Sep 5, 2020

In 2019 and 2020, our regard for time-tested valuation tools resulted in tactical portfolios being underexposed to stocks during a pair of tremendous rallies. Now, the critique is that we don’t appreciate the brilliance of today’s policymakers and their miraculous ability to pivot just when the stocks (and, in the latest case, the economy) need it most.

Sep 05 2020

Back To The Brink

  • Sep 5, 2020

Despite equal-weighted measures’ long-time underperformance, all valuation ratios we monitor for the median S&P 500 stock have returned to their top historical deciles. Even worse, our new equally-weighted “Valuation Composite,” based on these measures, closed August at a 98th percentile reading.

Sep 05 2020

An Unspoken Dilemma

  • Sep 5, 2020

Need more proof that we really are contrarians? While others were celebrating new all-time highs in the S&P 500 during August, we were wringing our hands over a disturbing new all-time low.

Sep 05 2020

An Unwelcome Surprise?

  • Sep 5, 2020

Several measures of U.S. economic “surprises” have soared to all-time highs in the last couple of months, showing that even economic forecasters have finally learned to play the corporate game of  “under-promise then over-deliver.” Mind you, that’s only 30 years after most industrial firms eliminated the role of “staff economist.”

Sep 05 2020

Earnings’ Lost Relevance

  • Sep 5, 2020

One characteristic of recent stock market action is extreme correlation. Chart 1 shows that during the sharp market decline following the COVID-19 arrival in the U.S. and the V-shaped upturn thereafter, the average correlation of S&P 500 constituents moved to near its highest level measured back to 1986.

Aug 06 2020

Free For All?

  • Aug 6, 2020

The weekly covers of The Economist do a pretty good job of capturing the zeitgeist of global financial affairs, but there’s so much packed into every issue (and enough to do around our shop) that sometimes all we see are the covers. But we have to admit we’re disappointed in The Economist for the week ended July 31st. The “Free Money” theme is at least four months too late!

Aug 06 2020

Measuring The Cost Of “Free”

  • Aug 6, 2020

The S&P 500 and NASDAQ have lately traded as if the hybrid “Fed/Treasury put” entails no cost at all. But dollar alternatives—like forex, precious metals, and crypto-currencies—are saying, “Not so fast!”

Aug 06 2020

Implications Of The “Breakout”

  • Aug 6, 2020

July’s developments led to us investigate the market valuations accompanying all past month-end S&P 500 breakouts which (1) eclipsed the prior month-end bull market high; and (2) made a new all-time high in the process.

Aug 06 2020

After The “Thrust”…

  • Aug 6, 2020

We’re concerned that cyclical groups, which normally catch fire after a breadth thrust, are tracking along the bottom (or below) the previous worst-case outcomes following identical breadth-thrust signals.

Aug 06 2020

Sentimental Musings

  • Aug 6, 2020

We get irked when TV pundits misrepresent the mood of equity investors as unduly pessimistic based one or two (or zero) data points. Among the dozens of “Attitudinal” indicators we track, an overwhelming majority show professional and retail investors have jumped back into the fray.

Aug 06 2020

A Look At Two Historical Near-Misses

  • Aug 6, 2020

As we go to press (said no one in the digital age, ever!), the S&P 500 was moving to within a couple percentage points of its February 19th all-time high. Given still-high valuations for the blue chips and increasingly frothy sentiment, we think any break above that high will be underwhelming, if not a potentially historic “trap.”

Aug 06 2020

A “Low-Risk” BUY?!?

  • Aug 6, 2020

So what do we make of July’s “low-risk” VLT BUY signal on the DJIA—the index on which the indicator’s creator (Sedge Coppock) did his original work? Sadly, not much.

Aug 06 2020

A “Litmus Group” For The Bulls

  • Aug 6, 2020

As troubled sectors vary from downturn to downturn, commercial banks have shown an uncanny ability to leap in front of each cycle’s proverbial pie truck. This time, it’s hard to identify the precise epicenter—especially amidst all the bailouts.

Aug 06 2020

How To Value Gold

  • Aug 6, 2020

July’s surge drove the yellow metal to the brink of its overvaluation threshold, where only 150 ounces of gold are required to buy the median-priced existing home (currently about $299,000). Impressively, gold made all but the last month of this move without attracting mainstream attention.

Aug 06 2020

Corporate Debt Continues To Pile Up

  • Aug 6, 2020

Public companies are loading up on debt. Since we wrote about this topic over a year ago, a few metrics have reached, or are surpassing, peaks of 1999-2000. When the readings move to extreme levels, we recommend readers take precautions.