Inside The Stock Market ...trends, cross-currents, and outlook
We launched a revamped version of our Major Trend Index. The objective of the new methodology is to increase the flexibility, and even the subjectivity of the MTI. This approach recognizes the “subjective reality,” without forcing us into the tedium of re-weighting sub-factors if they become more or less critical as market dynamics evolve.
In one year, the bull market has persuaded investors to do something they were reluctant to do near the end of an almost eleven-year bull: Lever Up. Year-over-year growth in Margin Debt reached 49% in February and should catapult far above the “conventional” 50% danger threshold with March’s results.
Twenty-one years ago, the bullish bets were on publicly-traded businesses (especially ones with dot-coms after their names). In contrast, today’s bulls seem more beguiled by bureaucrats—the central bankers who, having saved markets and the economy from catastrophe in the last year, are assumed to have mastered the business cycle.
Equity investors have had a multi-year love affair with TINA—the belief that “There Is No Alternative” to stocks in a world of ridiculously-low interest rates. This TINA romance has carried on so long that the S&P 500 is nearing valuations last seen in the Tech bubble’s final inning. If the fling with TINA has become prohibitively expensive, we’d like to introduce “SAMARA.”
Technical analysts continue to be aghast at the relentlessly “overbought” readings generated by Small Cap stock indexes. However, last month we noted that such extremes had previously presented themselves only at the early or middle phases of a Small Cap leadership cycle—never at the end of such cycles.
The “lower for longer” interest-rate thesis propped up the S&P 500 Low Volatility Index for more than a decade. Rising bond yields have since helped drive this former darling to an 18-year relative-strength low. Yet, assets in the S&P Low Volatility ETF are still five-times larger than its High-Beta counterpart.
Someday, we’ll have a chuckle with our (yet unborn) basketball-playing grandson about the time Shaquille O’Neal was able to raise several-hundred-million dollars in his second SPAC. But while these anecdotes get sillier and sillier, we have a personal bias toward speculative activity we can measure over time. That activity isn’t quite as alarming as the anecdotes, but it’s getting there.