I keep a short list of indicators to help me gauge the fundamental
outlook. The one clear positive has been the downtrend of short
term rates. My monetary liquidity indicators are turning from
negative to positive, but the readings are wan and have been
temporarily inflated by the addition of the Morgan / BSC deal to
the Fed's balance sheet and by the flow of income tax rebates.
On the negative side, corporate bond yields are rising across the
quality spectrum reflecting low confidence in the business
environment and the acceleration of inflation.
The SP 500 Market Tracker remains in a bear trend and sits
down at 1130, well below current levels in the market. The
Tracker may drop more as we head into August as a probable
further hike of CPI inflation measured yr / yr will suppress
the model's p/e ratio further. On the plus side, the recent sharp
decline in broad commodities indices points to lower inflation
readings down the road.
I would pay less attention to the Tracker if the primary indicators
were on a stronger footing. However, those indicators are too
weak on balance to support development of a cyclical bull market
at this point.
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