Inside The Stock Market ...trends, cross-currents, and outlook
Has the Stock Market Become the Derivative?
You are undoubtedly sick of reading about program trading, but this “In Focus” feature may be helpful. Portfolio Insurance, Index Fund Arbitrage and Interest Enhancement Programs are now all-important stock market factors, at least at times. We also offer one controversial but probable restriction that may well be imposed on the program gang.
View from the North Country
You all have experienced the frustrations of investment committee meetings. Read how Rosenberg Capital Management approaches group decision making. It Ain't Like the Good Old Days... U.S. dominance in the worldwide economic scene has greatly diminished. Aussie update: buy bonds and see the movie.
Inside the Stock Market
The Major Trend Index improved somewhat in September but remains in negative territory. The strong September down move was no surprise, it appears that a major cyclical market top is in progress. Portfolio “Insurance” played a significant role in the September decline and it could play the reverse roll in a future market rally.
Growth Versus Cyclical
For two months, cyclical stocks have been turning in some very strong relative performance while growth stocks have been fading. This month, we take a close look at this surprising shift. At this point, we still are not at all sure it is for real.
Circles and Cycles: The Current Index Fund Boom
Herein, we examine the new surge of indexing on the part of pension funds, explaining why we think it may be just the wrong time to be abandoning active investment management. While ultimately most equity managers can be expected to underperform the averages, the timing of the current rush to indexing may be all wrong. Shades of the late 1970’s!
Intrinsic Value Perspective
The stock market, at least according to the most popular market indices, has rebounded to its former 1986 peak levels. Updated histographs are included herein, providing perspective in terms of P/E’s, Dividend Yields, and Book Value ratios for the S&P 400.
Japan and Oil
We would not be at all surprised to see the Japanese becoming quite active in acquiring foreign oil reserves and perhaps investing heavily in some major oil companies. In this section, nine major reasons are given to support this contention.
View from the North Country
Fiscal Responsibility Update...Who were the bad guys this year? How to make a killing in the Oil Patch and an update on Australian bond.
Major Trend Index Remains Negative
Realizing no one really cares much for wet blankets, I am reluctant to report that our Major Trend Index remains negative. The continued negative status leads to the conclusion that the stock market is in the process of forming a broad distribution top.
View from the North Country
Fiscal Responsibility Coming in August (An update on performance, not the real thing)..…Programs & Portfolio Insurance: The new hot product in pension circles. Will the implementation of these programs have an impact on the stock market? We think it could.
Inside the Stock Market
The Major Trend Index slid to negative status in mid-June and currently remains in negative territory. It appears a cyclical bear market is underway. A typical bear market is down 24%-28%. A very cautious attitude is warranted and any further strength in the market is best viewed as an opportunity to become more defensive.
View from the North Country
Australian Bond Update…TV Isn’t All Bad…Tax Reform…How’s Your Long-Term Investment Perspective? Take the Quiz…How to Make Over 50% On Your Money and Lose
Major Trend Index Remains Negative
The Major Trend Index slid to negative status in mid-June and currently remains in negative territory. It appears a cyclical bear market may be in prospect.
A Demonstration: Stock Market Potential By P/E Level
Over the past 57 years, what kind of future performance did the investor experience when the market was at 10 times earnings? 15 times earnings? 20 times earnings? Based on this work, over the next five years total stock market returns should not be expected to exceed 6% per year.
View from the North Country
The rank and file in unions are becoming increasingly restless and dissatisfied with national union leadership. This could lead to more strikes, maverick unions, increased militancy, along with a decline in overall union membership. Some clues to the future may be found in the Hormel labor-management conflict in Austin, Minnesota.
What Happened to the Correction?
The Major Trend Index now reads “Neutral.” This 25-year-old composite index says the evidence is now evenly divided between bull and bear. Thus, at this point our best advice is to stand pat in terms of equity exposure.
Is the “Big Shrink” Yesterday’s News?
In 1984 and 1985, retirement of corporate stock was running far in excess of new issues, but we doubt if this is true in 1986. Equity offerings are now in excess of the former peak levels in mid-1983. All in all, the “big shrink” is no longer a valid part of the stock market bull’s case.
May Cross Currents
The stock market and bond market diverged rather sharply in May, with most market averages up about 5%, while bonds moved lower, especially long T-bonds, which fell over 6%.
Caution Light Still On
The work continues to indicate the stock market should be approached with a great deal of caution. I think we must at least entertain the possibility that the cyclical bull market is in the 8th or 9th inning.
Leaders & Laggers
From a sector standpoint, perhaps the most notable development of the past thirty days was the strong action of many smaller technology stocks. This strong relative performance has also carried over into the first few days of May.
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