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

Based on the historical percentages, the bull market should have a minimum of four to six months of life left. But the market has a way of throwing sand in the gears when you think you’ve begun to understand its internal mechanics.

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Q4’s margin figure is only one tick below the all-time high of 10.3% set in Q4 2011.

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Margin debt levels are high, but that’s because stock prices are high. The critical relationship is the comparative rates-of-change in Margin Debt and stock prices.

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The fifth anniversary of the bull market was met with fanfare, but the launch of the Large Cap leadership cycle in April 2011 is receiving no attention whatsoever.

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In December, we declared the market was likely entering into a cycle where High Quality stocks would shine. Unfortunately, market action since then reminds us of the virtue of being humble.

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Emerging Market investors are extending their “small” bet down to Small Caps and the Frontier Markets. We discuss potential reasons behind their outperformance.

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The post-2009 stock market upswing now qualifies as only the sixth cyclical bull market since 1900 to last five years or more. But only three of the previous five-year-old bulls lived to see a sixth birthday.

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The Dow Jones Industrials’ bull market gain of +150% is well ahead of the long-term median (+86%) and average (+134%), and places the 2009-to-date move as the sixth-best all time.

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With our equity exposure high and our disciplines still tilting bullish, we’re naturally more concerned with what might go wrong than missing out on some kind of 2013 repeat.

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Stocks have long looked expensive on the basis of dividend yield, but now they look increasingly stretched on Forward EPS.

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We “mapped” current readings on six time-tested valuation ratios to the month in which those readings were first matched or exceeded as the late 1990s market bubble developed.

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We’ve discussed the interrelationships between industrial commodities, commodity-oriented equities and Emerging Market stocks. Getting one’s bet right on any of these three has generally led to profitable positions in all three. But that certainly hasn’t been true in recent months.

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The bull market has pushed short-term annualized performance readings well above median levels, while the longer-term readings remain subdued. But there is a silver lining…

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The “South Korean Discount” comes from high market concentration risks due to: a handful of companies with significant market weights, tight business relationships with suppliers, and high levels of cross-ownership among companies. 

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The stock market kicked off 2014 with a (so far) shallow bout of weakness which we don’t consider to be the start of a new cyclical bear market or even a deep correction.

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January’s new breadth highs suggest new bull market price highs are likely some time in the next several months… but they can’t rule out a painful February.

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While the current market setback of –5.8% doesn’t qualify as an intermediate correction, it’s close enough to the threshold to warrant a quick review of what such a correction—and the ensuing recovery—might look like.

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While our tongue-in-cheek “Correlation Of Everything” measure has retreated from record levels, it remains far above anything seen prior to 2010.

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The industry price momentum effect - observable in data from the last several decades - has strongly reasserted itself in the last 18-24 months.

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Last month we suggested the top sector for 2013 would fall from grace in 2014, and the Consumer Discretionary stocks have been quick to cooperate in the last five weeks.

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