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

As of the end of Q1, the 20 year total return ACR differential between the S&P 500 and Ten Year Treasuries was negative, and at its lowest reading in 60 years.

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Bubble groups rarely return as market leaders until after experiencing a prolonged trading range pattern. Technology currently appears to have paid its dues and could develop into the next market leader.

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Most quantitative portfolio managers employ some variation of the momentum strategy, and most have had a hard time with this particular strategy since the end of 2007.

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Doug Ramsey demonstrates that new bull markets can be expected to correct by 10% or more at some point — which may be why so many pundants are looking for a correction now. Past history shows that based on duration it would be early in the current bull market for a correction at this time, but based on  magnitude, the timing would be about right.

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Our first introduction is of Jun Zhu, who broke the mold by not being another white Midwestern guy.

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Market vacuum occurred during the 4 weeks following the collapse of Lehman Brothers, when the S&P 500 dove from 1250 to 900. This occurred during the recession, but it has been the Retailers that are among the few groups that have closed that gap.

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A major long term theme developing on a global basis is Clean Technology. The Leuthold Group has built a dedicated portfolio to this theme by doing extensive research on 500 globally traded stocks that could ultimately be big winners in this very long term play.

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Eric Bjorgen takes an expanded look at some fundamentals surrounding the Financial sector. While bank failures are rising, prior history shows that good performance can still be produced in this environment.

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While U.S. banks are still seeing loan levels declining, China has seen a 24% increase in bank loans since the end of 2008. Assuming these loans are actually employed to build infrastructure, it would seem the recovery may be getting underway.

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When clients ask about our country views, we suggest they take a look at our global group work because our Global Group Scores are capable of capturing country alpha!

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Lots of people spinning economic and market statistics to cast doubt on the recovery and stock market rally. Doug Ramsey goes point by point to make an honest assessment about the current conditions. Things do actually look pretty good right now!

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Even after a decline in global earnings of 46%, they could experience another 15% decline before reaching the bottom of the 40 year trend channel. It doesn’t look like last quarter’s stock market bottom means that an earnings bottom is imminent.

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Believe it or not, 21 of our equity groups have not yet seen a quarterly decline in revenues. Several early cycle type groups have already experienced four quarters of declining revenues, but the good news is three groups have posted rebounds in revenues as of Q1 2009.

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We have maintained that the mere fact that the Financials sector has been successful in raising capital via new equity issuance in the stock market is a good sign that the system is stabilizing. The aftermarket support for these deals indicates a healthy secondary market, and furthermore, points to the presence of ample stock market liquidity.

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One might begin to think that if the reports of money supply growth rolling over are true, that the stock market could be facing its own liquidity crisis in short order. While these reports sound pretty bleak for future stock market liquidity, we advise taking these headline “scare” stories with a grain of salt.

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A month ago we suspected June might see a big institutional rush into the stock market. The stampede never came, though, and the market finished essentially flat for the month.

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Despite strong stock market returns relative to 10-year Treasuries, the “generational anomalies” still exist. Stocks should outperform bonds going forward.

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Looking at alternative ways to play China. See this month’s list of H-shares trading in U.S. markets.

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Valuation metrics using S&P 500 aggregate earnings can be skewed by large losses. Building a profile of valuations by looking at median valuations, or the distribution of valuations, can be helpful to avoid this problem.

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VLT Momentum measures shifted to buy signals based on May 29^th market close. These are low risk signals, which by definition are confirmation of longer term sustainable bull market moves.

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