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Economic expansion long in the tooth...Fed working to slow down the economy...Inflation cool...U.S. rates very competitive with foreign yields...strong dollar should continue to stimulate foreign bond buying.

It’s “Never Never Land”...stock market now above all past valuation extremes. Ultimately, a big bear market is out there, but shorter term the market may go higher.

Revised January 1997 U.S. equity mutual fund flows of $23.4 billion, setting an all-time record. February’s estimate of $20 billion brings YTD U.S. focus fund flows to $43 billion, well ahead of last year’s record pace.

Jim Floyd’s breakdown of eleven broad sectors within the S&P 500. The S&P 500 experienced 24 component stock changes during 1996. New component additions were not balanced within the sectors by the stock deletions.

This year we did not employ this late 1996-early 1997 tactical trading strategy. Nevertheless, some of our readers did employ the strategy, so we continue to monitor performance.

Reasonable valuations(?), risk reductions and the wealth effect.

Earnings momentum studies indicating a re-acceleration rather than a continuation of the earnings slowdown we’ve been seeing. Earnings up/down ration at 2.20. One of the strongest ever recorded.

Year to date, both the DJIA and the S&P 500 have outperformed 55 of the 73 sectors we track (75%).

Bond rally should be rekindled by mid-year. U.S. yields remain relatively high compared to foreign yields. Bonds expected to outperform stocks over next 6-12 months.

85% of mutal fund holders expect the next ten years of stock market performance to match or exceed the last ten years.

The tables on the next two pages are performance rundowns for The Leuthold Group's equity market sectors (and other measures) ranked by January's performance.

Each February, this publication, sometimes with help from our readers, constructs a series of “Fearless Forecasts”.

Further bond market weakness will be used as opportunity to boost T-bonds (Conventional Portfolio) and T-bond zeros (Unconventional Portfolio).

The passive indexers continue to hold the hot hand.

Over the last three years, capitalization weighted index funds (mostly S&P modeled) have been outperforming about 90% of the actively managed equity mutual funds.

Longer term studies of mutual fund inflows, cash reserves, etc., can be found in the "Supply/Demand" section of this publication. 

This is Jim Floyd's sector breakdown of eleven broad sectors within the S&P 500. 

This year we did not employ this late 1996-early 1997 tactical trading strategy.

Thermal pollution time...Steve Leuthold offers his 1997 views and 1996 reviews on U.S. stock market, interest rates, economy, etc.

December's stock market was a mixed up affair, but this is not unusual for December.