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December’s 9% drop in the S&P 500 made this vignette a lot more interesting.

The S&P 500 has again shown its mysterious ability to defy the conventional bear market threshold, with the decline into its Christmas Eve low becoming the fourth one in the last 30 years to halt just shy of the magic -20% figure.

The Attitudinal category’s net reading is the best (i.e., most pessimistic) since the week following the February 2016 correction low. While that’s an encouraging sign, there’s no mechanical threshold on this composite which would indicate a “safe” re-entry point.

Investors have just suffered a negative wealth effect that will likely work to tamp down inflation over the next year.

In September the popular claim was that “interest rates were rising for the right reasons,” and still too low to threaten stocks or U.S. economic expansion.

The lack of more meaningful MTI improvement in response to this month’s collapse suggests the bear has yet to fully express himself. But the swipes he’s taken so far have hit hard: Last week saw a nearly 150-point gain in the Intrinsic Value composite to its best level since April 2016.

It’s been one of the worst years on record for diversification, with our hypothetical All Asset No Authority (AANA) portfolio down 7.2% YTD through yesterday. That’s the second-worst year for AANA since 1972, and there’s probably not enough time left for performance to undercut 2008 (-24.9%) for the bottom spot.

Throughout the recovery from the market’s early-2018 correction, we suggested any new high would be a good candidate for a “fake-out breakout” along the lines of those near the bull market tops of 1990, 2000, and 2007.

The median trailing P/E across the Leuthold 3000 universe has corrected more than 30% from January’s bull market peak (and all-time peak) of 25.1x to just 17.3x on Friday, while the median Normalized P/E ratio has shrunk more than 20% to 22.4x.

The bears gorged themselves in the two weeks leading up to Thanksgiving and the S&P 500 closed at a correction low the day afterward. “Christmas” arrived immediately thereafter, with a six-day gain of 6%. But that was followed by a two-day collapse on December 4th and 6th, which undercut the post-Thanksgiving low on an intraday basis.

Headlines surrounding the U.S. housing market have recently fixated on sputtering home sales; declining affordability, thanks to the combination of rising mortgage rates and sky-high home prices, is to blame.

More of our long-term trend-following measures deteriorated to "bear" status, but it isn't unusual for the market to stage a brief countertrend rally when this work becomes as decisively bearish as it is now.

Although both High Quality and Low Quality stocks suffered in the last two months’ market turmoil, we are not surprised to see that, on a relative basis, High Quality stocks outperformed Low Quality.

Three years ago, we did a series of studies looking at price reactions to corporate earnings releases (ER) and we found that, since 2007, price movement has become more dramatic on ER days.

With three quarters of a sharply lower corporate tax rate on the books, the median four-quarter trailing profit margin for both the S&P 500 and S&P MidCap 400 jumped to all-time records in the third quarter.

We’ve sometimes called the yield curve our “favorite economist,” so we were amused when some enthusiastic data miner in the Treasury market tried to slip us a cheap imitation in late November.

It wouldn’t be a December Green Book without at least one page of hand-wringing over the year’s extreme underperformance of foreign stocks.

The S&P 500 Low Volatility Index has performed so well for so long that the ETF based on the index has amassed more than $8 billion.

In the spirit of keeping an open mind, three months ago we observed that our S&P 500 VLT Momentum measure had triggered a “moderate-risk” BUY signal with its August reading.

While the monetary and liquidity backdrop has deteriorated all year, the shorter-term economic evidence has remained mixed.