The table below compares the status of today’s stock market “internals” versus those which existed at the onset of (1) the past four U.S. bear markets; and (2) the two severe corrections taking place within the current bull market. There’s good and bad news here.

We’ve written before about retail investors’ tendency to “conflate” stock market action with movements in the underlying economy. Misunderstanding this interrelationship generally causes the public to liquidate stocks when the economy is weak, only to ultimately buy them back when the economic recovery is obvious to all.

Notwithstanding the opening days of June, U.S. stocks have shown remarkable strength considering the bull is now well into its fifth year.

Give those who’ve advised investors to “Sell In May” over the years some credit: they’ve never been too specific.

South Korea is facing a perfect storm of military threats, anemic economic growth both at home and abroad, a competitive threat from Japan’s depreciating currency, and a sell-off from a large ETF sponsor. Will its stock market decline further or is this an opportunity to do some bargain hunting?

While flows into the largest mutual fund category by assets have petered out in recent months, a number of impressive fund flow trends quietly remain intact.

April’s temporary drop in the Major Trend Index to Neutral status now appears to have simply been a false alarm. The MTI reverted to a bullish stance with the reading for the week ended May 10th, and closed the month at a moderately bullish 1.16.

Group Deactivations, New Groups and best performing groups in May.

Alternative assets have attractive return rates since 1994. But their portfolio diversification benefits have diminished as they become more equity like, though their correlations to bonds have fallen.

Growth stocks are still undervalued compared to their own history. Royal Blue Growth is less undervalued than the other Growth segments, and it is closing in on its historical average valuation. Value stocks are all overvalued (but less so in the Small Cap subset).

But Mid Caps are slightly outperforming YTD at +16.7%, though Small Caps (+16.5%) and Large Caps (+15.4%) are not far behind.

Large Cap Value outperformed Large Growth by over 400 bps in May.

Small Caps are selling at a 14% valuation premium relative to Large Caps, using non-normalized trailing operating earnings (8% last month). Using estimated 2013 operating earnings, Small Caps are selling at a higher valuation premium of 22% (16% last month).

These tables identify and compare important characteristics of the broad sectors of the S&P 500, along with the S&P Mid Cap and Small Cap indices.

The Equal Weighted index also outperforming YTD.

20 Year T-Bond: 5 3/8’s, Maturity: 2/15/2031, YTM 2.88% (vs. April 30th YTM at 2.39%)

High yield bonds are not immune to the tapering of QE.

Inflows into Muni bond funds turned negative; higher interest rates currently the biggest risk.

Consistent with our overall cautious view on credits, we still like “safe spreads”.

The RAI rose in May and stays on a “High Risk” signal. We remain cautious and recommend higher quality within fixed income.