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

While we continue to believe in our market bottoming thesis, we thought it may be useful to examine those periods when the P/E ratios continued to fall to the 10x to 12x earnings levels.

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In the past, Wall Street activity slowed in August as professionals headed for the beach. However, the “Hyper-connected Era” has changed all that, as evidenced by higher market volatility in recent years during July and August.

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Inflation is peaking and the GS Scores did a great job signaling an exit from the Industrial Metals play. Commodities were hit hard in July.

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Price momentum now indicating there may still be one more leg down in this bear market. Typically, price lows come after momentum lows, and a new momentum low was hit in mid-July. Similar analysis of NYSE New Highs/New Lows data supports this conclusion.

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Well, now it’s officially a bear market. But readers should realize that since bear markets typically decline 28%, the bear is likely at least two-thirds over.

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Comparing and contrasting our traditional Major Trend Index and the Global Major Trend Index. Both are now Neutral, but the Global version is showing better valuations and worse technical scores.

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Why have Small Caps been outperforming Large Caps since January?

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High Inflation typically is NOT a good environment for stocks, but we don’t believe the CPI will move to the “high” inflation environment.

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More bubble talk. Crude oil prices are following the same pattern as the tech bubble in the late 1990s. However, Energy stocks have not become nearly as extended as Tech stocks were in the late 1990s. Also, Energy stocks have shown far superior earnings growth compared to Tech.

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Prospects for increase to capital gains tax caused us to examine the historical impact such changes have on stock market performance, 1917 to date.  The record is not very encouraging.

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The statistical tendencies of seasonal patterns just haven’t proved persistent (or logical) enough for us to build them into our Major Trend Index. Can it be a bear market if the major indices do not decline more than 20%? Putting a nail in the coffin of the decoupling theorists.

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With or without Financials, earnings momentum has been gradually deteriorating over the past two years as sales growth slowed and margins have been pressured.

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The stock market continued to move higher in May, with small and mid cap stocks outperforming the majority of large cap indices.

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Based on NIPA Corporate Profits, the S&P 500 is now relatively cheap based on the prior 1956 to date history.

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It doesn’t seem too long ago when short sellers were vilified for bringing down viable public companies, and the appropriate punishment for short selling was deemed to be a public caning.

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Even though government statistics do not yet indicate a declining quarter of real GDP growth, we believe we are, in fact, in the grip of a recession.

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Former Morgan Stanley strategist Byron Wein—now at Pequot Capital—publishes an annual list of potential market and economic “surprises” that has become a must read for institutional investors. Along the same lines, Wired magazine listed ten potential threats to what it calls the “Long Boom”. (Warning: This list might make The Leuthold Group look cheerful).

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Relief finally came to Wall Street, not in the form of rebate checks or rate cuts, but from the strongest monthly returns since December 2003.

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Major Trend Index improved to Neutral in early April and clinging there now.  Are we seeing a delayed bear market rally?  Examining what could come next.

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Consumer confidence levels have sunk to five year lows. Could this be a bullish omen for the markets?

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