Inside The Stock Market ...trends, cross-currents, and outlook

Leadership isn’t warning of impending weakness in either the U.S. economy or the stock market. Market breadth, on the other hand, is highlighting risks that aren’t evident when inspecting leadership alone.

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The list of new lows is dominated by yesterday’s darlings, “bond-like” stocks. In particular, Utilities and REITs have been hammered. However, not all of the stock market’s high yielders have been trashed.

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Small Caps have an historically high P/E premium of 15% vs. Large Caps. This premium could go higher, but we’d be reckless to call for a long-term extension of Small Cap leadership given this premium.

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Buying global groups with strong price momentum has been a winning strategy. Will it continue?

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The celebrated gains in corporate profitability over the past decade and a half are attributable primarily to proportional declines in “below the line” items like interest expense and corporate taxes.

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We’ve noted before that profit margin gains since the technology boom have been primarily a Large Cap phenomenon.

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Identifying opportunities given this summer’s momentum reversals and currency vulnerabilities.

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The Major Trend Index has experienced a bout of instability since April, twice retreating to its Neutral zone before the bull market promptly overrode both signals.

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The YTD surge of 19% in the S&P 500 should ensure a stronger second half economy, and the big five-point jump in the latest Purchasing Managers Survey (ISM) might be the first evidence of this.

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IF one considers the 2011 decline a full-fledged bear market, then it follows the new bull market is only 22 months old. After all, we’re seeing some “immature” market behavior, and some atypical bear warnings.

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Whether one considers the post-2008 upswing two bull markets or one ultimately matters only to those who (like us) enjoy cataloging such things. But labeling the 2011-2013 rally a new bull market would certainly explain some of the “immature” behavior exhibited by U.S. stocks in recent months.

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With July’s market surge producing new cyclical highs in virtually every important subgroup (other than Utilities), it’s difficult—if not dangerous—to question the U.S. stock market’s technical underpinnings.

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Today it seems taken for granted that the great housing meltdown of 2006-2010 was sufficient to purge the last decade’s excesses, and that housing can now be relied upon as one of the drivers of a slow but elongated U.S. economic expansion.

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For more than two years we’ve discussed the supply-side risks to commodity producers stemming from capacity built during the manic “Third Act” of last decade’s Three Act Play in commodities. Commodity-oriented equities have indeed underperformed since 2011, but to date, most pundits have laid blame squarely on the demand side.

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Technology may be the biggest sector disappointment in the current eight-month leg of the rally, if not for the entire bull run from early 2009.

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With many (but not all) of our valuation metrics in overvalued territory, we present two histograms from our forthcoming quarterly BenchMarks publication that make the case that stocks are cheap (well, almost).

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Deteriorating Technicals drove the move to Neutral, but a new positive reading in the Attitudinal category gives some hope to the bulls.

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The relationship between U.S. Treasury bond yields and the relative performance of cyclical stocks versus their defensive consumer counterparts appears to be changing.

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Gold’s recent weakness may be more ominous for industrial commodity investors.

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Despite rising market volatility, Low Quality stocks ended Q2 up 3.8%, slightly better than High Quality’s 3.4% gain. YTD, High Quality stocks are up 14%, just behind Low Quality stocks at +16.6%.

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