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

February’s Oscar win validated our efforts to make the ‘Green Book’ suitable for all audiences, like our decision to relegate “bottom-quartile” valuation outcomes to the very back of the publication.

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While the celebration over Jerome Powell’s “Christmas Capitulation” lingered throughout February, we’re still awaiting signs the capitulation consisted of anything more than words.

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While it’s too early to let the ink dry on the accompanying table and chart, we’ve decided to add last year’s decline for comparative purposes.

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A few pundits have suggested that Jack Bogle’s death in January might prove to be the symbolic capstone to a cycle in which passive investing has completely dominated the full-fee, active money-manager ranks.

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We’ve been either light on Emerging Market stocks or out of them altogether since early 2011, but have lately been watching for an opportune time to re-enter.

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We’ve done extensive work on the yield curve, but until now had entirely overlooked an employment-based recession indicator that’s lately come into focus.

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For a couple years, we’ve labeled the S&P 500 Price/Sales ratio as the scariest chart in the Leuthold database, and last year’s decline did little to improve its intimidating appearance.

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Is the performance of certain countries mainly driven by particular sectors? And, does U.S. sector performance drive the performance of other countries? (i.e., when U.S. Financials underperform, do foreign countries with large Financials sector weights underperform?). We did some data crunching to address the second question.

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During the market bounce over the last few weeks, we reminded ourselves and others of the old maxim that “bear market rallies look better than the real thing.” Evidently, the stock market overheard us and took the advice as marching orders.
 

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Just a few months ago, Fed Chairman Jerome Powell boasted a reputation as a straight-talking, sound-money banker.

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The Fed’s “Christmas capitulation” seems to get most of the credit for the stock market rebound, but we’re not exactly sure how, or even if, the Fed capitulated at all.

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The stock market seems to have concluded that a recession will be averted in 2019, but evidence from other asset markets is less convincing.

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Corporate bonds aren’t the only asset reluctant to embrace the stock market’s latest “all clear” verdict on the 2019 economy.

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There are enough parallels between the 1998 and 2018 market declines that we decided to flesh out the comparison a bit more.

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To recap our allocation moves over the last year: We established an initial equity hedge in tactical accounts very close to the January 2018 highs.

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We’ve written at length about a bear market’s tendency to catalyze major leadership changes—across sectors, styles, and even geographies.

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Commodities were the worst performer among the major asset classes during 2018, with the S&P/Goldman Sachs Commodity Index losing 13.8% on a total return basis.

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Last year’s market decline was one of the largest to have occurred without a lengthy-preceding period in which breadth narrowed and Small Caps significantly underperformed.

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At some point in his career, famed stock trader Jesse Livermore ceased using the terms bull and bear,  opting instead to describe trends in terms of “lines of least resistance.”

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For those who remain skeptical that more stock market troubles lay ahead, we’ve supplemented the MTI and our other market tools with something truly authoritative: Evidence from a gossip column in a 1958 issue The Minneapolis Star!

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