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

Jun 07 2024

Beware The First Rate Cut

  • Jun 7, 2024

Confidence in the economic soft-landing scenario probably peaked in early April. The past two months have brought a stream of disappointing data, dragging the Citi U.S. Economic Surprise Index below zero for the first time since early 2023. No problem… stock investors have shifted seamlessly into their “bad news is good news” mode.

Jun 07 2024

Prices They Can’t Resist!

  • Jun 7, 2024

The S&P 500 is like a beach ball one tries to keep underwater. Whether that particular sphere could also be described as a bubble is open to question.

Jun 07 2024

Monetary Trumps Fiscal

  • Jun 7, 2024

The 10-Yr./3-Mo. Treasury spread and the Near-Term Forward Spread both inverted in November 2022. Unless the peak of the current economic expansion is back-dated to March (very unlikely), the lag time between the inversion and any near-term recession will be the longest ever for a successful inversion signal.

Jun 07 2024

Consumers Cracking?

  • Jun 7, 2024

The contraction in full-time jobs completely explains this year’s sudden collapse in the growth rate of real personal disposable income. The rate has disintegrated from 4% at year-end 2023 to just 0.9% in April, and matches that which prevailed on the eve of the 1980 recession.

Jun 07 2024

Small Cap Musings & Misgivings

  • Jun 7, 2024

Small Cap investing remains an exercise in futility, with the Russell 2000 already trailing the S&P 500 by more than 10% through early June. Even Technology stocks can’t escape the curse.

Jun 07 2024

Do High Rates Help Homebuilders?

  • Jun 7, 2024

Over the years, some of the best thematic plays in our Select Industries equity portfolio have been those that—at least initially—seemed to make the least “economic sense.” For example, who would have bet on Homebuilding stocks to shrug off a four-point spike in the 30-year mortgage rate over the last two-and-a-half years? Not many.

Jun 07 2024

Technicals: A Little More Fractured

  • Jun 7, 2024

The stock market picture at the June 5th SPX high was not as cohesive as that of late March. Just two of our eight bellwethers—Dow Jones Transports and Dow Jones Utilities—had failed to confirm the new market high at the end of March. At the high on June 5th, however, the list of laggards expanded to include the Russell 2000, S&P 500 Cyclical Sector Composite, and the S&P 500 Equal Weighted Index.

Jun 07 2024

Short-Term Cracks To Watch…

  • Jun 7, 2024

While “divergences” between two market indexes are readily apparent on a chart, they are not so easily quantified. And evaluating whether such disparate action has any forecasting ability is even more difficult.

Jun 07 2024

Long-Term Cracks To Ignore?

  • Jun 7, 2024

Our studies of the S&P 500’s co-movements with the A/D Line and Financials sector confirmed our belief that these bellwethers are valuable ones. It’s certainly the type of result we like to publish. (“Hey look, our gut instincts were correct all along.”)

Jun 07 2024

Cracks Beneath The NASDAQ?

  • Jun 7, 2024

While the NASDAQ rebounded sharply from its mini-setback in April, daily 52-week new lows in the index eclipsed new highs several days in late May and early June. It’s rare to see that happen on days when the NASDAQ 100 itself closes at a 52-week high, yet that’s exactly what transpired on May 24th.

Jun 07 2024

How Pricey To Be “Passive?”

  • Jun 7, 2024

Monetary tightening has yet to send the economy into recession, although we still believe that’s likely to change before year-end. But the lack of monetary support helps explain market-leadership trends that have been the inverse of what one would normally expect from an early-stage bull.

Jun 07 2024

Part-Time Investing In Small Caps

  • Jun 7, 2024

Elsewhere in this section, we bemoaned Small Cap long-term underperformance, which has trailed the S&P 500 by 5% per annum since the end of the last Small Cap leadership cycle (early 2011). Lately, we’ve noticed that academic discussion of the “Small Cap Return Premium” has largely disappeared—a potentially encouraging sign for contrarians.

May 07 2024

Peeking Ahead To November?

  • May 7, 2024

The stock market seems to relish the headlines it believes we’ll be reading three- to six-months from now. At the end of that window, of course, is the presidential election, and it’s impossible for us to see an outcome that doesn’t deepen the partisan chasm.

May 07 2024

Why The Long Faces?

  • May 7, 2024

Despite our reservations about the durability of the expansion, we have to respect what it has overcome: interest-rate hikes of 425 bps; a nearly 2-year runoff in the Fed’s balance sheet (QT); and a 9-month bear market that began before the expansion reached its 2-year milestone. Even consumer “expectations,” which track the market higher in the early phase of a bull market, never rebounded and are lower now than at the fall-2022 market low.

May 07 2024

The Bull Vs. Historical Peers

  • May 7, 2024

Now at the bull market’s one-and-a-half-year mark, it’s notable that every major stock index has trailed the average path for a new bull market at this point in a cycle. But, it’s unfair to liken today’s bull with past bulls, because it has a unique adverse trait that is apt to be life-shortening: It arose during an economic expansion—and likely in the latter stages, considering the unemployment rate was 3.5%.

May 07 2024

Are Prices Impeding A Factory Recovery?

  • May 7, 2024

The U.S. manufacturing sector has been in a mild recession for more than one-year-and-a-half, with only a single reading in the ISM Manufacturing Index north of the 50 level since September 2022. And since June 2022, there were only two months in which the ISM New Orders Index poked above the 50 expansion/contraction threshold.

May 07 2024

Are Prices Impeding Recoveries Elsewhere?

  • May 7, 2024

The Federal Reserve’s ultimate inflation-battle success will be judged entirely on the performance of aggregate numbers, like Core and “Supercore” inflation, and the PCE Deflator. However, we think it’s unlikely that certain cyclical sectors, such as housing and autos, can recover in the absence of outright price cuts in the year ahead.

May 07 2024

Powell Could Pull Off A Rare Feat

  • May 7, 2024

Powell could be remembered as a Fed Chair who was apolitical to a fault, and there’s one last item that would cement his legacy of political independence: Jay could well preside over another election-year decline into recession (as in 2020). If so, he will have achieved it with a president from each major party. Powell would emerge as the ultimate non-partisan—and an effective enforcer of single-term presidencies.

May 07 2024

Bubble “Resistance” Proves Formidable

  • May 7, 2024

Many pundits would contend that a stock-market bubble can’t exist (or even develop) with consumer pessimism as widespread as today. We are not so sure, but we currently don’t think U.S. Large Caps quite qualify as a mania, either, since the stock market was just rebuffed at three of the four valuation thresholds we use for making that determination. Bubble or not, if the market peaks out here, it will represent the third most-expensive top in the history of our valuation work.

May 07 2024

Too Calm For Comfort?

  • May 7, 2024

Can the stock market become so calm that it’s dangerous? The volatility of the S&P 500 Implied Volatility Index (VIX®) can provide a clue.