SPX -- Monthly

The SPX remains in a cyclical bull market and is experiencing its third leg up since the bottom in
early 2009. The third leg commenced in Feb. '16, and was confirmed during the past year by a
positive turn in the very important monthly MACD measure.  SPX Monthly

It is very difficult to judge how far and how high this leg may carry. There is sufficient capital
slack in the US economy to carry the market well into 2019 even though the labor market is getting
tighter. Also, there are plans to be debated in the Congress to cut taxes, repatriate foreign retained
earnings and develop a sizable infrastructure program. It seems at this point that the Trump admin.
would prefer to fund most of the contemplated tax cuts and increased spending on infrastructure
projects via substantially larger Treasury and agency funding. The size and funding of these
programs must pass muster in a Congress which richly embodies the deep political, economic and
social divisions in the US.

Since the first powerful surge of economic recovery which completed over 2010 - 2011, the pro-
gression of economic expansion has been slow (real growth) and low (modest inflation). The Fed
has choked off growth of basic liquidity since the end of 2014, and is now following a policy of
gradually raising short term interest rates. Headwinds have replaced powerful tailwinds on the
monetary front and the market has moved from a low risk / high return environment to one of
rising cyclical risk and less assured returns.

With both labor force and productivity growth running low, future business sales and earnings
growth potential are running well below long range experience, the stock market is reliant on
a continuation of low inflation and interest rates to remain competitive in the capital markets.

The stock market is once again running above the upper band of its price range starting from
the end of WW 2.These periods can extend for a few years, but downside price risk is rather
high even though a bear phase may not now be imminent.

Investors are so keenly interested in the Trump admin.'s stimulus programs because they forsee
accelerated economic and earnings growth coupled with probable moderate Fed tightening and
faster but not skyrocketing inflation that would combine to give them a shot at earning excess
returns for a few years. Absence of such programs seems to beckon dreary and risky times as
well as lousy bonuses for investment managers and rising career risk in a business that is not
short of capacity.

So, there could be some market downside if the Congress ties these stimulus outlines up in knots
and confounds all the equity investment mangers who are hoping for a new lease on life.