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

Deteriorating stock market breadth was one of the factors contributing to the overall decline in the Major Trend Index to Negative status. An examination of the current Advance/Decline Lines shows the fade is continuing, and is particularly prevalent in the small cap indices.

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The Leuthold Group maintains three short interest models. All three issued timely BUY signals on the market near the summer 2006 lows, but none of these three models provided any hint of the market weakness that recently unfolded in July and August. 

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Steve presents his mid year outlook for “Alternative Investments”

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The yield curve has moved away from inverted status, leading many to conclude the possibility of recession has been avoided. However, a look at past recessions reveals that a reversal of an inversion typically occurs prior to the economic decline– ranging from 6 months to over a year in advance.

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Following the market rout of recent weeks, we imagine there are many clients sharing our nervous view of the stock market. For those clients, especially those managing long-only equity strategies, we thought it may be helpful to highlight some defensive groups that are scoring well in our group work.

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Performance chasing Main Street investors have been channeling their assets elsewhere, despite the respectable returns to be found within their own domestic equity market.

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2007 half time report. Revisiting our original 2007 projections with some current modifications. Outlook for stock market, interest rates, inflation, profits, economy, the deficits, the U.S. dollar and gold.

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At a time when the public remains largely sidelined, corporations, private equity, and professional investors continue to take the U.S. stock market averages higher.

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What little discussion of a possible U.S. recession there had been in the first half of the year has dried up with an apparent pick up in the economy. “Inside The Stock Market” this month presents a 2008 Recession Watch, identifying some indicators which may prove useful in assessing the possibly of a coming recession.

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Yes, the S&P 500 is near all time highs, but what if the index was denominated in other currencies? Denominated in euros, the S&P 500 is still 30% below its March 2000 high.

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This global bull market in stocks has been unusual in that it’s been accompanied by bull markets in things that often exhibit little correlation or even negative correlation to equities.

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Valuations set the stage for better performance out of growth.  But it is important to note that there’s precedent for the value cycle—seemingly already overextended in time and price—to get much more extended. 

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Our Attitudinal analysis—or investor sentiment—normally deteriorates badly leading into a major market top, but has held up surprisingly well in the face of the last several weeks’ almost relentless, daily upside action. 

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Steve Leuthold revisits the 1987 stock market, and includes some excerpts of his commentary in the Green Book from the months leading up to the October crash. There are some stunning similarities to today’s market. Also, commentary on the current China stock market. Some have compared it to Japan in the late 1980s, but there are distinct differences.

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This is the first time that combined net demand for open-end funds and ETFs has been negative since last December, and is quite interesting, even unusual, considering the stock market continued to post new highs during the most recent month.

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It is getting increasingly clear that current stock market gains are being built upon the backs of corporate and private equity investors.

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After one of the most active months ever for private equity offers, we revisit our LBO screen in “Inside the Stock Market” section. This screen has thus far outperformed the S&P 500 since we introduced it in January of 2006.

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The Index of Leading Economic Indicators has a proven track record of indicating when a recession may be near. Although this index has been trending sideways for quite some time, it has not yet rolled over.

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The bulls remain in command as evidenced by the fact that the broad market averages continue their ascent toward new cyclical highs (or in some cases like the DJIA and Russell 2000—new all-time highs).

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We view traditional open-end funds as the primary indicator of individual investor sentiment, and consider ETF demand primarily a function of professional demand. With that said, the positive $3.5 billion going into open-end U.S. stock funds in April tells us that individual investors remain cautious.

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