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Small cap earnings momentum appears to have improved significantly again in Q3, but this was matched by an equally impressive earnings performance by big caps.

Only nine of the 75 sectors tracked moved higher in October. Small caps shifted back to underperformers by going down more than the Big Cap Indices. Technology was devastated.

Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade. Inflation outlook positive.

More and more employees get stock options these days, but for shareholders this can be a loser’s game. Comments on autumn in Vermont and the “Masochist’s Ball” (Contrary Opinion Forum).

Major Trend Index downshifts to neutral. Big loss in Technical measures due to late October sell off. We are in a critical market period...Have Mr. And Ms. Main-Street become more skittish after experiencing a dose of downside risk?

Obviously 1997 to date has been a high volatility year. This degree of day to day volatility was last recorded in 1987.

Further global emerging market turmoil could provide tactical opportunity to accumulate positions at bargain basement levels via closed end country funds. Now at discounts to NAV.

The big volatility week at the end of October didn’t seem to cause much panic among fund buyers (maybe it was good they couldn’t get through on Monday). We are guessing the sustained strong net inflows will bounce back strongly.

Increasingly, stock and bond markets moving in opposite directions. There may be some reasons why this is happening now.

Contrary to August, when the S&P 500 was beaten by 93% of the sectors tracked, September saw more normal action.

In September, 19% of the trading days qualified as high volatility days.

Index fund net inflows remained low in September at about $1.1 billion (estimated). This is almost flat compared to the $1.2 billion in August.

After two weeks of net outflows in August, the public returned to the mutual fund trough in September.

Small caps continued to outperform in September’s strong market. Improving small cap earnings and sales momentum. Improving sponsorship (so far) from aggressive and emerging net fund inflows.

Octophobia…but October 1997 is not at all like October 1987. In 1997, the Advance/Decline line has continued “in gear” with the S&P 500, whereas in 1987, the A/D line peaked out five months before August 1987’s peak.

Our momentum studies indicate that big cap earnings and sales momentum may be fading. Small cap earnings and sales trends, on the other hand, appear to be stable and maybe even improving.

Stock market still considered lead economic indicator? Maybe not, considering the last three years, the stock market has been driven by Main Street. Changing role of portfolio managers: risk management function reduced to minimum if it even exists at all.

Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade...A return to “normalcy” implies falling US bond yields.

Big caps lost favor in August, as the S&P 500 beat only five of the 72 sectors, while the DJIA only managed to outperform two sectors.

Bond risk still considered well below potential equity market risk...longer term, bond potential returns at least equal to potential equity returns.