US Stock Market

Fundamentals
Core fundamentals continue positive. Important liquidity growth factors are past their peak
yr/yr, but momentum is declining gracefully. Corporate profits gains have accelerated recently
with strong growth indicated in the current quarter. Monthly business new order data has
trended strong too, but weekly data has started to flatten out, a cautionary sign regarding
earnings momentum down the road.

As QE 3 winds up next month, liquidity growth will decelerate more. Business sales and earns.
progress should slacken as we move toward and into 2015. With milder liquidity expansion on
tap for 2015, competition within the capital markets for funds will intensify.

the coming end of QE 3 has so far had a significant but hardly fatal impact on stocks. SPX
positive momentum has shrunk from last year's barn burner level but is decent. Smaller cap
stocks have not fared nearly as well. This sector is flat after having sharply outperformed the
SPX last year. Portfolio beta is being reduced.

The mantle of greater monetary policy accomodativeness is passing from the US to the EU.
The EU stocks have underformed the SPX pretty steadily since the end of 2012, but relative
performance for the STOXX 600 has picked up recently and may challenge the downtrend
line against the SPX going forward (See SPX chart bottom panel below).

With slow global economic demand growth in place since the end of the deep recession of
2008 - 09, more geopolitical turmoil should be expected. The are millions upon millions of
younger people out in the world with deepened struggles to find their way. Risk has been
contained regarding the capital markets, but that can change. Also, UKR vs. Russia has
entered a new and less easily predictable phase.

Valuation
The SPX is not overvalued yet, but investors are paying a premium multiple for cyclically
elevated earnings. The risk / return profile is thus deteriorating as the market rises with
cyclically advanced earnings. The SPX is now trading at 22.3 times long term trend net
per share of $90. This is not a record by any means, but the high valuation suggests that
players who want to stay in the market review their liquidity requirements carefully.

Technical
The SPX continues in its third and longest upwave since the cyclical low of Mar. 2009.
It is mildly overbought in the intermediate term (3 -6 mos.) on the indicators. SPX Weekly
The consistency of trend since late 2012 remains astounding.