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Click to read the latest Major Trend Index report.

Last week we overlooked a key milestone among the daily parade of new stock market highs: The Stock/Bond Total Return Ratio finally exceeded its cyclical high from the summer of 2007. Since July 13, 2007, the S&P 500 has generated a cumulative total return of +73.5%, just ahead of the U.S. 10-Year  Treasury Bond total return of +70.0%. These work out to annualized returns of around 6.0%.

The Major Trend Index dropped 0.04 to a ratio of 1.16 based on data for the week ended November 18th. It was pulled lower by small to moderate losses within each of its five indicator categories. Despite the MTI’s decline from the high levels that persisted throughout much of the fall, this “weight of the evidence” approach remains bullish for the stock market. Our tactical funds continue to target net equity exposure of 63-64%. 

It’s not only the electorate that’s polarized in the wake of last week’s presidential vote: Internal disparities within the stock market over the last several days have been some of the most extreme we’ve ever observed. For example, on Monday, November 14th, NYSE Daily 52-Week New Highs and Lows both exceeded 10% of Issues Traded. There’s no day that’s been even remotely comparable in almost 75 years of NYSE history.

The Major Trend Index rose 0.01 points to 1.20 in the week ended November 11th, with big swings within the MTI’s five factor categories essentially cancelling one another out. Net equity exposure in the Core and Global Funds remains at its 63% target, with no changes made in recent weeks. It’s clear, as one pundit put it, investors are betting on “tax-cut Trump” rather than “trade-war” Trump.

The S&P 500 Financials’ four-day, 11% rally has carried the sector to a new bull market high and the best closing level since May 6, 2008. The new high eliminates one of the long-term negative divergences from the Red Flag Indicator discussed periodically in the Green Book. Another longtime “Red Flag,” the Dow Jones 65 Composite, closed yesterday only fractionally below its December 29, 2014, all-time high. This is good action.

The Major Trend Index dropped 0.08 points to a ratio of 1.19 in the week ended November 4th, ending a three-month streak of readings above the 1.20 threshold. Nonetheless, the work remains decisively bullish, and we’ve made no recent adjustments to our tactical funds’ targeted net equity exposure level of 63%.

Our AdvantHedge gross composite rose 4.7% in October, outperforming the inverse S&P 500 (+1.8%) and performing inline with the inverse Russell 2000 (+4.8%).

The MTI remained unchanged from the end of September and is still safely in the positive range.

The Major Trend Index closed October flat at its month-earlier reading of 1.27. 

Earnings season is not only important for fundamental investors, it can be equally so for quant managers. For quants that incorporate fundamental data, like us, historical trends and changes in consensus estimates may weigh heavily on model output.

Companies are returning cash to investors at a level never before seen. Counting dividend payouts and outstanding share repurchases, the amount of cash returned back to investors crossed the $1 trillion mark for the first time in January 2016 (based on trailing twelve-months’ total for the largest 500 companies, Chart 1).

While a plunge into a recession could always result in a final “blow-off” phase to the 35-year secular bull market in bonds, any youthful, long-term buyer of 10-Year Treasurys should weigh that exciting possibility against the odds that bonds do no more than match the inflation rate over the next 30-50 years.

The travails of active equity managers have been well-documented throughout the year, but there’s been little attention paid to the 2016 plight of economic forecasters—especially ones unlucky enough to have been accurate.

Politicians bemoan the lack of “good-paying jobs,” but what’s the current perspective of employers? According to a simple measure developed by economist Edward Renshaw many decades ago, employers see a lack of “unused labor capacity” in the U.S. that should lead to yet another year of disappointing GDP growth in 2017.

While this 7 1/2-year bull market has failed to give rise to anything resembling the equity culture of the late 1990s, we think it’s a stretch to claim—as dozens of commentators over the past five years have—that this bull is “the most hated” in history.

In the June Green Book, we professed some skepticism surrounding the long-term, “low-risk” BUY signal for stocks that was triggered at the end of May by our Very Long Term (VLT) Momentum algorithm (also known as the Coppock Curve).

Scott Opsal’s “Chart of the Week” in mid-October suggested the seven-quarter S&P 500 earnings recession may have run its course.