Market Climate
As of last week, the Market Climate for stocks remained characterized by unfavorable valuations, mixed market action, and unfavorable economic pressures. The stock market is clearly overbought on a short-term basis. Day-to-day fluctuations continue to be dominated by attention to various widely-followed technical "support" and "resistance" levels. An easing of economic concerns would make us somewhat more constructive in response to periodic improvements in market action, but our latitude for doing so is constrained by valuations. More reasonable valuations, coupled with an easing of economic concerns, would be ideal of course, and would provide us much greater latitude to respond to changes in the quality of market action. Meanwhile, we'll take our market evidence as it comes, and remain focused on individual stock selection and portfolio construction. Both the Strategic Growth Fund and the Strategic International Equity Fund remain fully hedged at present.
In bonds, the Market Climate remained characterized by moderately unfavorable yield levels and favorable yield pressures. Bonds have pulled back from their recent highs on hopes of averting further economic weakness. Though investors have clearly taken a breath of relief on the basis of narrow surprises (note for example that last week's new unemployment claims report was coupled with upward revisions for the prior two weeks), it's not at all clear that investors understand the typical lags between leading indicators, coincident indicators, and lagging indicators. For our part, the prospect of further economic risk, and therefore the prospect of Fed action on quantitative easing, and in turn, bond price strength and U.S. dollar weakness, is still very much on the table.
Copyright (c) John Hussman, Hussman Funds
