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

S&P Normalized valuations are already in the zone that have defined many important bull market tops.

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The game is now over for Discretionary, and this opinion is supported by the sector’s decline to the bottom of our GS Score ten-sector composite.

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Healthy Tigers is not a new exhibit at the zoo, but rather a new index of stocks that will benefit from expanding health care in emerging Asia countries, especially in China.

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Doug Ramsey highlights the “point of recognition” in this month’s “Inside The Stock Market” section. This is the point of maximum market upthrust, the point at which even hardened pessimists become convinced that the economic recovery and bull market are for real.

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Economic growth is re-accelerating, but that growth is coming at a cost…price pressures are building significantly. Manufacturing prices are up along with commodity prices.

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As we expected, it was not a memorable “Playing The Bounce” year.

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All time honored seasonal anomalies are indicating stocks can go higher in 2011. The good news is our Major Trend Index agrees, and has actually been getting stronger the last few weeks.

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Fundamental rationales also have strong psychological elements. Normalizing earnings helps minimize the startling impact of declining earnings.

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From our perspective as disciples of Normalized EPS, the entire bull market to date has come from P/E expansion. However, that stands to change as global Normalized EPS are again on the rise.

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We examine the correlation between CleanTech and Petroleum and find that, contrary to what is commonly believed, the overall correlation between oil prices and Clean Technology shares is rather weak.

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If we look only at the past eleven years, 2000-2010, the S&P 500 has decisively underperformed the Russell 2000.

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As we expected, it was not a very good “Playing The Bounce” year. Many fund managers still had substantial tax loss carry forwards which they used to offset 2010 gains.

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2010 was better than it felt for the equity markets, but while 2011 may be better for the economy, it might not be as strong for the equity markets. Could the bull market be running out of milestones?

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Year-ahead stock market forecasts are now in hot demand, but of course are notoriously off the mark most years. Very long term forecasts (say, out to the end of the decade) are in virtually no demand, but are considerably easier to get close to the mark for those armed with the right tools. 

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History appears to be repeating itself as the risk premium for stocks is making a comeback. Ten-year Treasuries are now the riskier asset class compared to equities.

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It’s a big mistake to react to the headline reports of employment, and an even bigger mistake to make investment decisions based on them.

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Offerings are beginning to pick up. While not even near the levels of excess, the trend bears watching. The initial surge in offerings is typically indicative of a rising market.

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It does not look like a very good “Playing The Bounce” year. Many fund managers still have substantial tax loss carry forwards they can use to offset this year’s gains.

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The latest bull market has now essentially matched the returns for all bull market recoveries dating back to 1900. Remarkably, it has accomplished this in only half the normal time frame.

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Low quality stocks led out of the past bear market, as typically occurs. Despite being the clear winners from the 2009 lows, it looks like the lower quality stocks can continue to outperform given current valuations and momentum.

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