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Current median valuations are almost identical to those seen at the bull market highs of March 2000 and October 2007.

The cyclical bull market is approaching its fifth birthday. Should you be nervous? Yes, but not so much because of its age.

If a bear market is imminent, it will unfold with less “internal” forewarning than any cyclical decline since the late 1930s.

The inflation-adjusted all-time high for the S&P 500 is currently 2061, a figure we think will be just out of reach for 2014.

The “dual mandate,” which means the Fed is paying close attention to both inflation and employment, presents a clear dilemma for the Fed when it comes time to decide on a taper.

Momentum and Value worked in 2013. Materials and Financials were the easiest sectors to exploit; Discretionary and Tech the most difficult. Momentum works in December; Value and Small Caps at the start of the year.

The Major Trend Index fell 0.03 to 1.12 in the week ended November 22th. While the bullish margin is now narrower, we closed out the 2% short position in Small Caps; this move brings net equity exposure in the Core and Global Funds to 63%.

Another week of estimated net outflows ($6.6 billion) has caused the bond mutual fund category to breach new lows.

Domestic equity mutual fund net cash flows continued their positive streak with an estimated $3.4 billion in net inflows this week.

The Major Trend Index dropped 0.03 to 1.14 in the week ended November 8th. The reading remains bullish, and our net equity exposure in both the Core and Global funds remains at the 60% target we’ve maintained since July. 

Current trends continued this week. Domestic equity mutual fund net cash flows were positive for a fourth consecutive week (an estimated $0.6 billion), but decelerated after two weeks of strong net cash inflows.

We find hidden opportunities in Equipment & Services Providers, Coal and Natural Gas. We consider these themes longer term holdings instead of short-term plays

  The S&P 500 gained 4.5% (price only) in October. Based on the valuation metrics presented below, the S&P 500 has 12% downside to reach its historical average.

Our quantitative measures for the group and broad sector continue to improve; we think the recent relative turnaround in these stocks is poised to continue.

The Major Trend Index remained within a fairly narrow, bullish band throughout October, and closed the week ended November 1st at 1.17. This is compared with a final September reading of 1.16.

The Cap Weighted S&P 500 (+4.5%) slightly outperformed the S&P 500 Equal Weighted (+4.2%) during October. YTD, the spread between these two indices remains wide, with the Equal Weighted index outperforming by 4.2%.

Growth stocks are now all above their historical average valuation levels. Value stocks are all solidly overvalued compared to their recorded averages.

Multi-Line Insurance, Health Care Equipment, Pharmaceuticals and Automobile Manufacturers.

Small Caps are selling at a 16% valuation premium relative to Large Caps, using non-normalized trailing operating earnings. Using estimated operating earnings, Small Caps are selling at a higher valuation premium of 23% (25% last month).