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This year’s Bounce faded in December and January, reversing what looked to be an excellent bounce season to just a “so-so” one.

The S&P 400 Mid Cap index had a tough year in 2006. On the other hand, The Leuthold Group’s Mid Cap Index did very well, up 21% in 2006.

The $4.1 billion going into open-end U.S. stock funds is clearly indicating that Main Street investors are entering 2007 with a cautious outlook for the U.S. stock market.

We believe interest rates are headed higher in 2007. Economy picked up some in Q4. Bond market sentiment still looks too optimistic.

We dig deeper into the capital spending data to determine which industries still could benefit from recent CAPEX trends and which ones are likely to get hurt.

Steve Leuthold highlights his 2007 Outlook in this month’s “View From The North Country”.

Many of the broad market indexes climbed to new cyclical highs in late-December, confirming that 2007 is almost certain to begin with a bull market still in command.

Adding two new portfolio groups to Select Industries Portfolio this month: Integrated Telecom and Wireless Telecom. These additions create a portfolio weight that is four times the S&P 500 Telecom weight.

The weak December performance is to be expected, as many of these “Bounce” stocks likely came under additional selling pressure as individuals were cleaning out their portfolios at year end.

The equity markets proved elusive for active managers in 2006. It took great courage and maybe even some luck to call the various market turns correctly.

Emerging Markets have attracted a lot of investor interest...possibly too much interest. This seems to be just about everyone’s favorite investment for 2007.

Our annual “Look In The Rearview Mirror”, a critical examination of the research in 2006...the good and the bad.

In 2006, the capitalization weighted S&P 500 was up 13.6%, excluding dividends. The average return for the 500 stocks (S&P equally weighted) was up 14.2%.

As measured by the lackluster levels of cash flow into U.S. equity funds, much of 2006 saw a low level of interest in the U.S. stock on the part of Main Street investors, despite the continued gains posted by U.S. equity indexes.

Despite the December correction, our 10-week Hines ratio (a modified put/call ratio) continues to show rampant speculation in T-bond futures call options, suggesting speculators are still betting on declining yields. 

Expect economic recovery to pick up a little steam in early 2007, before slowing down in the second half. A 2008 recession is a possibility. 

A look back at the performance one would have achieved by investing in the year’s best groups and the pain felt from investing in the worst performing groups in 2006. We also examine the strategy of buying a prior year’s winners and losers in anticipation of better performance the following year.

Leuthold shares summary comments on various subjects, such as Consumer Sentiment, and the dollar, among others. Also, airlines as growth stocks (?) and the 2006 Elections: the Incumbent advantage still dominates.

Look for upcoming In Focus Special Research Study, which will introduce the Leuthold Group’s new Global Equity Group analysis. This new product will feature market commentary and analysis, along with Global Group Selection Scores on 67 global industry groups.

Small caps bolted out of the gates early in the month, ending November with gains that were ahead of the large cap indexes.