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The Major Trend Index slid to negative status in mid-June and currently remains in negative territory. It appears a cyclical bear market is underway. A typical bear market is down 24%-28%. A very cautious attitude is warranted and any further strength in the market is best viewed as an opportunity to become more defensive.

The highlights are few. All in all, this was a pretty bloody mess. I suspect most portfolio managers had a tough time holding their losses to less than the markets 6%.

We are establishing the regional Bell companies as a formal equity portfolio sector, initially investing in BellSouth, NYNEX and U.S. West in this issue. We think these companies look like an attractive defensive equity haven these days.

Bonds held their own in July but did not make new highs. However, it is only a matter of time. We don’t expect much in August but look for a move below 7% for T-bonds by year end.

Australian Bond Update…TV Isn’t All Bad…Tax Reform…How’s Your Long-Term Investment Perspective? Take the Quiz…How to Make Over 50% On Your Money and Lose

The Major Trend Index slid to negative status in mid-June and currently remains in negative territory. It appears a cyclical bear market may be in prospect.

A rundown of the June and year to date sector leaders.

Over the past 57 years, what kind of future performance did the investor experience when the market was at 10 times earnings? 15 times earnings? 20 times earnings? Based on this work, over the next five years total stock market returns should not be expected to exceed 6% per year.

A number of clients have requested historical data regarding earnings, dividends and book values for the stock market indices. This section provides information, going as far back as 1910.

Bonds rallied strongly in June but did not make new highs. However, it is only a matter of time. Look for a test of the highs in July. Also, introducing “Inflation Watch,” a new regular feature that will report on our ongoing inflation research work.

The rank and file in unions are becoming increasingly restless and dissatisfied with national union leadership. This could lead to more strikes, maverick unions, increased militancy, along with a decline in overall union membership. Some clues to the future may be found in the Hormel labor-management conflict in Austin, Minnesota.

The Major Trend Index now reads “Neutral.” This 25-year-old composite index says the evidence is now evenly divided between bull and bear. Thus, at this point our best advice is to stand pat in terms of equity exposure.

In 1984 and 1985, retirement of corporate stock was running far in excess of new issues, but we doubt if this is true in 1986. Equity offerings are now in excess of the former peak levels in mid-1983. All in all, the “big shrink” is no longer a valid part of the stock market bull’s case.

The stock market and bond market diverged rather sharply in May, with most market averages up about 5%, while bonds moved lower, especially long T-bonds, which fell over 6%.

Book value has its faults as an analytical tool with individual stocks, but it seems to be quite valid in the aggregate as a stock market value gauge. This most recent addition to our value benchmark series presents quarterly book value ratios for the S&P 400 on a quarterly basis, 1929 to date.

This issue we are making this computer screened quantitative theme a formal part of the equity model portfolio. It had been absent from the model since the fall of 1983. Floyd and Leuthold have tuned up this screen over the last few years and believe it is an excellent stock selection technique for the current environment.

May saw the T-bond market come down into our buying zone and we are buyers in this issue. We expect 7% on T-bonds before 1986 is over (now 8.50%) and maybe lower. The stock and bond markets do not have to move together as May clearly demonstrated.

The Case for Australian Government Bonds: On a relative basis, these bonds look better to us today than in August of 1985. The Real Estate Game: The real estate glut has now spread across almost all of the nation. Still, a number of pension funds and insurance companies continue to put up more buildings. Does this really make investment sense?

The work continues to indicate the stock market should be approached with a great deal of caution. I think we must at least entertain the possibility that the cyclical bull market is in the 8th or 9th inning.

From a sector standpoint, perhaps the most notable development of the past thirty days was the strong action of many smaller technology stocks. This strong relative performance has also carried over into the first few days of May.