SPX Weekly -- Longer View

Fundamentals
In the initial economic recovery surge, US business rose to exceed 10% yr /yr. during 2011. Then
a slowdown hit which ran into late 2015. Volume growth slowed significantly and pricing power
went from 4-5% annually into negative territory. The stock market weathered this seriously
deficient performance because of the huge QE programs from the Fed and a dramatic increase in
earnings capitalization (p/e ratio). Over the course of 2015, the private sector took over from the
Fed and funded the economy. Business began to pick up sharply in early 2016 and the stock market
began a new cyclical leg up. Business sales recovered from negative momentum territory to
finish 2016 at around + 7.5% yr / yr. Very large excess inventories which dogged the economy
in recent years have been pared down sharply and earnings have recovered substantially. Sales
growth momentum, especially in retail, has slowed throughout 2017, but is at a respectable 5%
 5 % Ann. rate given low inflation.

My weekly cyclical economic indicators have been suppressed by recent hurricane damage,
but the trends through 2017 continue to suggest that further growth momentum
erosion is on tap for later this year and into 2018. At present, recently renewed broad strength in
the SPX shows that investors apparently have little concern.  SPX Weekly


The Fed still desires to "normalize" monetary policy via raising short rates further and also via
reducing the size of its balance sheet, perhaps on a systematic basis. We may be about to step
off into new territory from an historic basis. If and when the Fed proceeds on both fronts, it will
usher in era of quantitative liquidity tightening (QT). The banking system holds enormous
excess reserves from the QE programs, and it will be the surplus reserves that are cut. Even so,
if the Fed sells securities and allows others to run off, it will impact liquidity in the markets
negatively. As of today, there appears to be little concern in the markets.

Technical
The SPX continues to trend higher, but is approaching another intermediate term overbought on
RSI. Recent overboughts have only slowed down positive price momentum, but be assured some
traders are near to squeezing the sides of their chairs.