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Earnings momentum may be peaking. The economy should slow by mid-1995, but analysts may not be factoring this into estimates. Also, year over year comparisons will be tougher as 1994's big earnings numbers get factored in.

The incentive system from hell: Adjusted for inflation, we now spend nine times as much on welfare as when the War on Poverty began in 1965. Also, an interesting study by Collins Associates: Past performance is not a reliable prediction of future performance and, in fact, is a poor predictor of future results.

Bond market now ahead of itself...Economy stronger than many perceive...Fed may not be done tightening...Expect bond market correction to develop from overbought position sometime in March.

Our studies suggest we still have some further regression before returning to median returns. Looking out to a 3-5 year horizon, we expect equity returns to lag historical averages as returns regress further toward normal long term (10 year) performance.

The market’s tone improved significantly in very late January and got even better with the impressive bond motivated upside explosion on Friday February 3.

Back in the December issue, this publication laid out a tactical case for buying gold stocks.

As previously noted, we are deactivating the 1994-1995 “Playing The Bounce” strategy, temporarily moving the better performing stocks to the “Holding Tank”.

The new supply of equities continues to subside. New offerings and secondaries are now far below fall 1993 peak levels.

Three steps and stumble, four steps and fall down?

The table on the next page is a performance rundown for The Leuthold Group's equity market sectors (and other measures) ranked by January's performance.

This X-Rays & EKG's section presents the best and worst performing conceptual sectors and quantitative themes over the first half of the 1990's.

Leuthold may have another favorite economist. Paul Krugman at Stanford was recently recognized as the best American economist under the age of forty.

Weight of the evidence discipline remains neutral this month. Long T-bond six and twelve month worst case still seen only as 8.50% level.

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

The basic message is unchanged since early March 1994.

The new supply of equities is still somewhat high, but coming down. 

I'm sure many readers have seen the following chart in financial publications, and I see a few of you have reprinted it in your client communications. 

Ned David Research examined stock market behavior after the capital gains tax reductions in October 1978 and August 1981.