Stock Market / Economy

The rally in the market to a new cyclical high over the past seven months primarily reflects
the expectation that substantial new QE by the Fed would eventually translate into faster
business sales and earnings growth. Now the QE4 program of liquidity infusion did not
get going until early Nov. 2012. In turn, my weekly cyclical fundamental index (WCFI)
 -- a forward looking measure as far as the economy is concerned -- began to recover in
June. On balance, the advance in the stock market has mirrored the WCFI, but the economy
has yet to confirm the WCFI with an acceleration in growth. I have not been so concerned
with this issue because I figured that since QE 4 did not start in earnest until early Nov., it
would be best to tack on a 3-4  month lead time to the unofficial onset of QE before looking
for faster economic progress. Well, we are there now, and it is fair to look for the economy to
start performing better PDQ (quickly).

Sales and production data for Jan. '13 were not good, and it appears that the business
inventory sales / ratio is running a little higher than earlier in the recovery. Moreover,
US trade data for Dec. '12 showed both imports and exports to be flat on an extended basis.
And, to cap off matters, the WCFI has started to flatten out as well in recent weeks following
a strong initial start (Confirms the recent loss of momentum in stocks).

I do not find the stock market at all interesting as a long unless we not only see business sales
pick up soon, but get on a track that would begin to lift US sales out of the 3 - 4% pattern we
have seen for months. For me, it is unwise to bother putting capital at risk for more than a
short term trade unless I think I can earn a 10% return per annum at the minimum. The
prospect of 3 - 4% top line growth for US business is not likely to support the return hurdle
I use. The SP 500 is trading around 15X 12 month earnings and a slow struggle, modest growth
muddle - through is not going to be good enough.

The US economy needs to start performing pronto.

Weekly SPX Chart