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As suggested in our June 24th, Chart of the Week, the peak in consumer inflation (+8.6% in May) has likely either occurred or is imminent. Consumers should thank the stock market, which in 2022 has taken up its occasional role as inflation-fighter after the Fed abdicated throughout 2021.

We apologize for that terribly misleading teaser of a title, but the bills for the stock-market mania of 2020-2021 are piling up. Inflation is one of them, lately increasing each month as relentlessly as cable TV used to. And for the 10% of households who own 90% of the stocks, market air-pockets such as June’s are like “surprise” medical bills: There’s rarely just one

AdvantHedge was up 7.5% in June, trailing the inverse S&P 500 (+8.3%), and the inverse Russell 2000 (+8.2%).

Both the Leuthold Core and Leuthold Global portfolios saw negative performance in June, as the underlying equity portfolios underperformed their benchmarks. Fixed income and gold also sold off.

The 2022 bear market has been driven entirely by a collapse in P/E ratios. Last month, we noted that the other potential driver of market declines—falling earnings—had yet to raise its ugly head. Now we examine past episodes to consider how the stock market might react when the “other shoe” (EPS) drops.

Read this week's Major Trend.

A downright awful performance quarter for the S&P 500 (-16.5%) has our downside-to-median estimates at their narrowest points since May 2020.

Read this week's Major Trend Index. 

The 2022 economic backdrop is nothing like the near-Goldilocks environment accompanying the first few innings of the Y2K Tech bust. However, the action to-date in the former Growth stock leaders has followed the 2000-2002 path very closely—and almost on a point-for-point basis, when it comes to some  indexes. With the stock market “weight of the evidence” still negative, we wouldn’t be surprised if the Y2K analog holds for a while longer.

Read this week's Major Trend update. 

High inflation continues to dominate the headlines, but it is only one piece of the “weight of the evidence” that’s stacked against the stock market. Still, in ironic fashion, stock-market action itself suggests that inflation is set to peak.

The most brutal bear markets occur when falling earnings are accompanied by shrinking valuations, producing a compound negative effect on stock prices. Investors in 2022 have (so far) avoided this double-whammy in that valuations have taken a hit, but EPS estimates are holding strong. We are intrigued by the notion that 2022’s bear market has, to date, been all about valuation compression rather than earnings weakness. Investors are coping with the problems of the day by letting the air out of bubbly valuations, and this report takes a closer look at the valuation squeeze underlying the current selloff.

Read this week's Major Trend update.

A replay of a Zoom Call with Chief Investment Strategist, Jim Paulsen where he shared his thoughts and observations on today's market and what he sees looking ahead. The slides are available through the PDF Download.

Read this week's Major Trend update.

From the end of 2020 through May, stocks in the top quintile of both value and momentum have returned 60% versus 7% for the overall universe. That compares to the brutal stretch from 2016-2020 when the only way momentum investing worked was to not only disregard valuations, but to actively buy the most expensive momentum stocks.

The gyrating S&P 500 found a way to end the month perfectly flat. Retailers, casinos, hotels, and resorts all felt the pressure of passing along higher prices to consumers. Energy firms benefiting from an increased slice of consumers’ budgets made up most of the top-25 performing firms in May. That sector has grown from 2.7% of the S&P 500 to 4.8% in the first five months of 2022.

Beat up Small Cap Growth has returned to its September 2020 price level with much improved fundamentals. Over the last twenty months, that segment’s median P/E multiple has moved from 39.7x to 27.1x and is now below its 1982-to-date average.

Our Ratio of Ratios sits right at the 12-month moving average with no clear trend. Small Caps seem priced to outperform but that’s been the case for the better part of four years.

With the second month of Q1-22 earnings in the books, our Up/Down ratio is a very weak 1.06. Even if we are nearing a cycle peak, the level of earnings is still impressive. S&P 500 four-quarter trailing earnings are now 34% higher than the previous peak just three years ago.