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

Apr 07 2020

The Bull Is Dead, But The Leaders Live On

  • Apr 7, 2020

The bull market of 2009-2020 is no longer. But its spirit—its leadership—has somehow lingered, right through the worst of the decline and during the eleven-day, +19% S&P 500 bounce that followed.

Apr 07 2020

NASDAQ Goes “Parabolic?”

  • Apr 7, 2020

From now ’til eternity, bullish market pundits will always be able to argue that the global spread of the coronavirus “caused” the current global recession and bear market. While the pandemic was certainly the final catalyst, these pages had been detailing the emerging cracks for over a year.

Apr 07 2020

Did The 20% Bounce Kill The Bear?

  • Apr 7, 2020

We rolled our eyes when Barron’s and others proclaimed a “new bull market” after a three-day, 21% surge off the March low. That incredible bounce is much more likely to be the first of at least a few bear market rallies.

Apr 07 2020

Looking To Credit For Clues

  • Apr 7, 2020

One of the first cautionary signals to emerge during the market’s two-year topping process was the failure of spreads on low grade corporate bonds to return to their early-2018 cycle “tights,” despite last year’s surge to new stock market highs.

Apr 07 2020

Confidence Is The Key

  • Apr 7, 2020

The bull case for a “brief” pandemic-related recession and powerful recovery is the same as the bull case from two months ago for “no recession or bear market” at all: stimulus (as if that’s exactly what the U.S. economy has lacked for the last 11 years).

Apr 07 2020

A Bear Market In Price, But Not Time

  • Apr 7, 2020

We have a hard time accepting that the excesses associated with an eleven-year bull market and expansion can be fully expunged in 27 trading days, no matter how ugly those days were… keep some powder dry!

Apr 07 2020

How To Tell When Sellers Are “Exhausted”

  • Apr 7, 2020

NASDAQ was the superstar of the bull market yet, ironically, it was a NASDAQ breadth measure that periodically signaled that all was not well beneath the market’s surface.

Apr 07 2020

Small Cap Smack-Down

  • Apr 7, 2020

We were fooled on Small Caps, and it’s been a “multi-factor” catastrophe.

Apr 07 2020

Are SMIDs Cheap Enough?

  • Apr 7, 2020

A composite measure of Mid Caps and Small Caps are at bottom-decile valuations relative to their 26-year histories. From a shorter-term viewpoint, though, we find it scary that valuations are so low just a single month into the recession.

Apr 07 2020

Are Foreign Stocks Cheap Enough?

  • Apr 7, 2020

For those who must remain fully invested, an interesting (if not sickening) feature of the bear market is that those who entered it loaded with the most expensive and “trendiest” stocks and sectors have lost the least.

Apr 07 2020

Are You “De-Worsified?”

  • Apr 7, 2020

In recent weeks, we’ve seen the “sell-side” investment community get about as cautious as it ever gets, recommending investors to “trim risky holdings on ‘up’ days” and “stay diversified.” However, these cheerleaders’ idea of diversification is usually to hold more equities in different sizes and styles.

Apr 06 2020

Is Passive Ownership Exacerbating The Sell-Off?

  • Apr 6, 2020

With the enormous popularity of ETFs, we’ve wondered if the high level of passive fund ownership could lead to stock price deviation from company fundamentals, and thus create greater price volatility.

Apr 06 2020

Time To Revisit “Why We Normalize Earnings”

  • Apr 6, 2020

With an economic calamity and the Easter season upon us, we thought this would be a great time to resurrect our “Why We Normalize Earnings” vignette. Long time readers will recognize this as a staple from Green Books’ past.

Mar 06 2020

Milestones, Mayhem, and Miley

  • Mar 6, 2020

If it can recover from its February setbacks, the bull market will turn 11-years-old some time in March, and our Golden Retriever will turn 13 at the end of the month.

Mar 06 2020

Back Breaker?

  • Mar 6, 2020

With the wavering state of consumer and business confidence, even a modest stock market correction of 8-10% might deliver the fatal blow to confidence—and therefore to the U.S. economic expansion.

Mar 06 2020

Out Of The Blue?

  • Mar 6, 2020

There have been long-time divergences between blue chips and other market segments signaling that all is not “in gear” beneath the surface—but this cautionary activity never foretells the “timing.” Recently, Small Caps, the Value Line Arithmetic Composite, and Dow Transports staged pathetic bounces off the January 31st “Coronavirus 1.0” low, while the blue chips had strong momentum into mid-February. Normally, such divergences typically last for at least 3-4 months before they become meaningful.

Mar 06 2020

Valuation “Reset?”

  • Mar 6, 2020

The massive performance dispersion of the past two years makes it difficult (if not hazardous) to draw a simple conclusion about U.S. stock market valuations. But it’s safe to say that cap-weighted indexes like the S&P 500 and S&P Industrial Index remained significantly overvalued at the low point of the February correction.

Mar 06 2020

A Developing Opportunity In The “SMIDs?”

  • Mar 6, 2020

The underperformance of Mid and Small Caps in the last few years has taken valuations from top-decile readings (and, indeed, a few all-time records) just 25 months ago, down to the middle—and even lower reaches—of their 30-year valuation boundaries.

Mar 06 2020

Over-Stimulated?

  • Mar 6, 2020

We can’t count the number of times in the last week we’ve heard analysts worry about “what the Fed might know that we don’t.” In the words of John McEnroe, “You cannot be serious!”

Mar 06 2020

A Real Corona-Crash In Credit

  • Mar 6, 2020

If the U.S. economy falls into recession in the months ahead, it might be the only one in history that will be remembered as having been triggered by a “black swan.”

Mar 06 2020

A Signal Bulls Should Love...

  • Mar 6, 2020

There’s no question that it’s been a rough couple of years for stock market technicians. We noted earlier that if February 19th stands as the final high of the bull market, it would be only the third time in the last 100 years that the NYSE Daily Advance/Decline Line failed to provide at least a few months’ advance notice of the oncoming bear.

Mar 06 2020

Are You “De-Worsified?”

  • Mar 6, 2020

The past 26 months have been wild ones for equity investors, but one could have essentially matched the S&P 500’s healthy return of +18.1% with a portfolio that was evenly split between the “fear” assets of Treasury bonds and gold. REITs have been solid, too, but EAFE and the Russell 2000 are now both total return losers since the beginning of 2018.

Mar 06 2020

“Oversold” Doesn’t Mean “BUY”

  • Mar 6, 2020

In difficult market periods, Steve Leuthold liked to distinguish between conventionally oversold markets and those that had become “Jesus Christ oversold.” Recent action clearly qualifies as the latter. There are many ways to define a “dangerously” oversold condition, but the one that always raises our antenna is now flashing extreme selling pressure that might take longer than usual to mitigate.

Mar 06 2020

Enhancing Country Rotation With Sector Concentrations

  • Mar 6, 2020

A dramatic shift of country weights within EM indexes has become an inadvertent challenge for a country rotation strategy. Due to this, we tested the integration of a momentum-based sector rotation model to attain exposure to the top-rated sectors to represent the markets of the largest country components instead of seeking to obtain “whole market” exposure.

Feb 07 2020

The Alternate Ending?

  • Feb 7, 2020

After last year’s spectacularly successful pivot following the December 2018 plunge, the thinking is that future rate hikes are the bull market’s only threat. Perhaps that will be the case; the belief is certainly well-supported by postwar U.S. economic history, but it also reveals a shocking lapse in short-term memory.

Feb 07 2020

Superhuman Feats Got Us Here

  • Feb 7, 2020

The simultaneous “New Era” ascension in margins and P/E ratios hasn’t generated anything exceptional from a return perspective. To the contrary, annualized S&P 500 total returns over this 25-year period of margin magic and (mostly) escalating P/E ratios merely match “Old Era” returns.

Feb 07 2020

Liquidity Overflow!

  • Feb 7, 2020

Based largely on the bearish trends in our monetary and liquidity measures, we were correctly negative on stocks throughout most of 2018. It’s therefore especially painful for us that 2019’s market rebound has been credited almost entirely to the “pivot” in most of those measures.

Feb 07 2020

Parabolic Prescience?

  • Feb 7, 2020

Market bulls rightly note that in the late 1990s, dozens of stocks exhibited Tesla-like action before the fun eventually came to an end. But we’d remind investors that the last few years have featured other “busted parabolics,” and all of them were followed in short order by broader market troubles.

Feb 07 2020

Keep Some Powder Dry

  • Feb 7, 2020

We’ve discussed market analogies with the year 1999 at length, and will give it a rest for awhile—in part because parallels to the year 2000 have cropped up! In the first five weeks of 2020, the NASDAQ 100 has already outperformed the NYSE Composite by about 7%, while in the first five weeks of 2000 the spread was 8%.

Feb 07 2020

EM Equity Purgatory

  • Feb 7, 2020

Nine months ago we established a “pilot” position of 4% in Emerging Market equities in the Leuthold Core Fund, based mostly on the bullish inflection in a long-term technical indicator (VLT Momentum).

Feb 07 2020

Energy: Kicking A Dog When It’s Down

  • Feb 7, 2020

With crude trading at only about half the level seen in the first few years of this expansion, there might be a tendency to view its current price as depressed. But from an inflation-adjusted perspective, today’s price sits right on top of its modern-era (post-embargo) median.

Feb 07 2020

Central Planning Makes A Comeback

  • Feb 7, 2020

Bulls who fashion themselves as contrarians argue that the public is nowhere near as infatuated with the stock market as they were in the late 1990s. It may come as a shock to our readers, but we agree with them.

Feb 06 2020

Index Rebalance Effect—A Disappearing Anomaly?

  • Feb 6, 2020

In the past we’ve made the observation that adding/deleting stocks to/from a popular index can have a profound impact on the target stocks’ short-term trading volume and performance.

Jan 08 2020

A New Year, Or A Blast From The Past?

  • Jan 8, 2020

It was during the very first days of the great 2019 market rally that we noted its similarities to the bubbliest of all the bubble years—1999. Wow. We had it in our hands and frittered it away.

Jan 08 2020

A Blast From The Past

  • Jan 8, 2020

With 2020 representing The Leuthold Group’s 40th year of publishing Perception For The Professional, we perused the first few Green Books for relevant nuggets from 1981, but the backdrop could not have been more different. Therefore, we instead turned the clock back 20 years, thinking it might yield insights more resonant with today’s environment.

Jan 08 2020

A Spectacularly Average Thirty Years

  • Jan 8, 2020

In the spirit of good holiday cheer, we made a partial concession to the True Believers with a December “Chart of the Week” in which we narrowed our stock market valuation analysis to the historically elevated levels of last 30 years.

Jan 08 2020

Charts Are In The Eye Of The Beholder

  • Jan 8, 2020

After last year’s 30% S&P 500 gain, many strategists are now suggesting that the real melt-up still lies ahead. We think a melt-up has already occurred, and the bulk of it has been booked.

Jan 08 2020

Waiting For The Stimulus To Trickle Down...

  • Jan 8, 2020

Last year the Federal Reserve dumped historic stimulus onto a full-employment economy and an already richly-valued stock market. The stock market obviously loved it.

Jan 08 2020

Stocks And GDP

  • Jan 8, 2020

Economists argue the best thing the stock market has going for it is the continuation of the U.S. economic expansion. Maybe.

Jan 08 2020

It’s Not What They Borrowed, But How They Used It

  • Jan 8, 2020

Following the deflationary bust of 2007-2009, the last decade was expected to be one of deleveraging. Only U.S. consumers appeared to get that memo, however.