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

May 06 2022

Unfinished Business

  • May 6, 2022

Our tongue-in-cheek celebration of the bull market’s second birthday in late March looks premature. But the “Terrible Twos” we warned about have erupted in full force.

May 06 2022

Past Pivots Put Powell In A Predicament

  • May 6, 2022

Market conditions leading up to the May rate hike were similar (if not worse) than those that triggered Powell’s late-2018 “pivot.” Free-market tightening of 2022 is apt to play into the path of policy. There’s likely a dovish “pivot” in store later this year—one that may be aggressively sold rather than bought.

May 06 2022

The Case Of The Missing “Puts”

  • May 6, 2022

In the last few months, we’ve warned that Wall Street’s favorite security—the Federal Reserve Put—has been at least temporarily replaced by a novel derivative with a less favorable risk/reward profile: the short Fed call.

May 06 2022

Not Dot-Com

  • May 6, 2022

Bulls have been quick to assure us that this market “bears” no resemblance to the dot-com bust. We agree—but probably for very different reasons. Among them are the conventional breadth measures, which provided little warning of this year’s January peak. And, the initial decline off January’s top has been much broader than during the first phase of the dot-com bust.

May 06 2022

Who Doesn’t Love A Sale?

  • May 6, 2022

The S&P 500 closed May 5th with a moderate 13.5% loss from its all-time high, a move that explains only part of what’s already been an historic bear market—in P/E ratios, that is.  

May 06 2022

Peak EPS: Another Critique

  • May 6, 2022

It’s only been a few years since we added the Peak P/E ratio to our suite of market valuation measures. That situates us in the uncomfortable position of having to explain why a big decline in this newer metric might be misleading.

May 06 2022

Stocks, Inflation, And Reverse Causality

  • May 6, 2022

Forget interest-rate hikes and quantitative tightening. There exists a very important weapon in the fight against inflation that the Fed did not have at its disposal in the 1970s: an overvalued stock market.

May 06 2022

“Donuts”—The New Comfort Food

  • May 6, 2022

For the last few years, the S&P 500 has been the most richly priced of the broad equity indexes, and its moderate decline, to date, makes it even more so on a “relative” basis. In recognition of that, we began to track the hypothetical allocation strategy of avoiding this index.

May 06 2022

Cycles: Is The Worst Yet To Come?

  • May 6, 2022

Does the market’s poor YTD performance prior to the six-month “Sell in May” combined with the Presidential Election Cycle help “inoculate” it against a typical mid-year, mid-term swoon? Yes, there’s some evidence to support that view—especially with Small Caps.

May 06 2022

History In The Making?

  • May 6, 2022

They didn’t ring a bell at the NASDAQ’s November 19th top, but shortly thereafter we wrote that the day was notable in that it was only the third time in history that a pair of our weekly Technical sub-models closed in “maximum bearish” territory at the same time.

Apr 07 2022

Welcome To The Terrible Twos!

  • Apr 7, 2022

In late March, the S&P 500 came close enough (3.5%) to its January high that a second birthday celebration for the bull seemed warranted. Who doesn’t love a party? But, as we noted in a recent Chart of the Week, a milestone like this is a good excuse to haul our pet to the veterinarian for a checkup.

Apr 07 2022

The Terrible “Two-Year”

  • Apr 7, 2022

In a simple test of 15 yield-curve variants, we found that the 2s10s spread ranks second to last, based on its correlation with one-year-forward real-GDP growth since 1978. The three best measures employed the 3-month bill as the “short” rate. The spread between the 5-year note and 3-month bill showed the strongest correlation with subsequent economic growth.

Apr 07 2022

X-Rays And EKGs

  • Apr 7, 2022

In late March, the S&P 500 rallied to within 3.5% of its January high, likely prompting producers at CNBC to put in an order for “S&P 500 5,000” hats. But we think that 4,000 will be undercut before 5,000 is topped, and action in key indexes (with the notable exception of the S&P 500 itself) reinforces our view.

Apr 07 2022

Signs Of “Demand Destruction?”

  • Apr 7, 2022

They are simple measures, but our “NOPE” Indexes capture (as well as anything) the escalating inflation squeeze on businesses and consumers. To recap, the NOPE is the spread between the ISM New Orders Index and the Price Index, which can be calculated for both the Manufacturing and Services sectors.

Apr 07 2022

Consumers’ Misery Is Also The Fed’s

  • Apr 7, 2022

An already-low unemployment rate has dropped another 0.3% YTD (to 3.6%) and stocks’ rebound in the second half of March took the S&P 500 to within 3.5% of its all-time high. Yet Consumer Sentiment has sunk to 59.7—a reading that’s 15 points below the average seen at the last six NBER business-cycle troughs. Why the long faces?

Apr 07 2022

Earnings: Reversing The “New Normal?”

  • Apr 7, 2022

If earnings’ nearly vertical ascent continues for another six months, 12-month trailing EPS will intersect the 6.9% long-term-growth trend line connecting the five major EPS peaks between 1974 and 2007. The “New Normal” has given way to the “Good Ol’ Days!”

Apr 07 2022

“Gapping” Lower?

  • Apr 7, 2022

NIPA’s “all-economy” profit margin declined a bit in Q4—which typically peaks before SPX profits—and that falloff coincided with the economy officially reaching full employment, based on the CBO’s Nominal GDP Output Gap. When the Output Gap has flipped positive (like in Q4), corporate profit margins usually come under immediate pressure.

Apr 07 2022

Cycles: A Key “Window” Is Approaching

  • Apr 7, 2022

Next month kicks off the seasonally-weak phase of the stock market’s Annual Cycle: May-October. Overlaid on that is the statistically vulnerable stretch of the four-year Election Cycle: the “mid-point” of the Mid-Term Year. There’s a positive way to spin this mid-term malaise: The cycles imply that an ideal window for a major low is about to open.

Mar 05 2022

Zigs And “Zags”

  • Mar 5, 2022

Like Gonzaga in the NCAA basketball tournament, stock market bulls are set for their first real test in a very long time.

Mar 05 2022

Isn’t That Super?

  • Mar 5, 2022

Washed-out investor sentiment and “oversold” stock market oscillators are usually good reasons to get more invested in stocks. But in the case of super-oversold conditions, it is commonly a forewarning that another wave of selling is yet to come.