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

Funds of funds, particularly target date funds, are growing rapidly and are now large enough to have a measurable impact on underlying fund flow trends.

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With the notable exception of the Consumer Discretionary sector, cyclical stocks topped out globally on a relative basis in early 2011 (Chart 3). Throughout the last two and one half years, there have been repeated calls for industrial cyclicals—which were, of course, the leaders of the last cyclical bull market—to reassume stock market leadership.

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We’ve frequently mentioned the two-faced nature of thematic leadership during the current bull market. Filtering out the minor swings, Phase One lasted from March 2009 through February 2011 and was dominated by low quality, high beta and cyclical stocks.

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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.

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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.

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

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

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The new debate over the QE “taper” erupted at the same time that a long-reliable Fed-tracking tool is telling us it’s time to ease.

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Commodity producers seem to believe that last decade’s commodity boom is set to repeat. This belief itself probably ensures that it won’t.

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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.

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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?

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We weren’t prepared to find industry price trend persistence so much more predominant at the global level than it was domestically.

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Those inclined to sell in May should sell Small Caps. If you don’t have Small Caps, sell Cyclicals, at least for the next six months.

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The Dow Jones Corporate Bond Index has worked in eight of the last nine decades. The credit information in corporate bond prices provides valuable input for investors.

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There are many reasons to think the MTI’s cautionary message should be taken seriously.

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While U.S. stocks have surged this year, Emerging Markets have languished. What is going on in Emerging  Markets to cause this unusual situation?

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