The State Of The Market (In Two Bullet Points)

Right on cue, stocks began to pull back a bit last week. And while the extent of the decline so far has been less than 2% (-1.92% according to my calculations), the bottom line is many investors are turning cautious here.

For me, the key risks include the possibilities that (a) the Delta-induced slowdown becomes larger than expected, (b) the Fed makes a policy mistake, and (c) inflation becomes a problem.

On the latter, note that we will get the reading of August's CPI tomorrow morning. The consensus seems to be that a monthly increase of 0.4% is the line in the sand. Anything above may cause the market angst, while readings below would seem to support the Fed's "transient" narrative.

So, there you have it. While there are reasons for concern at this stage of the game, my take is the bulls remain in charge and should be given the benefit of the doubt. My guess is that the market will continue to be driven by the state of COVID in the coming weeks. Thus, I'll continue to track the infection/hospitalization/death date and trends.

Now let's review the state of the market from a modeling perspective...

The Big-Picture Market Models

We start with six of our favorite long-term market models. These models are designed to help determine the "state" of the overall market.

Primary Market Models

* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR.

The Fundamental Backdrop

Next, we review the market's fundamental factors including interest rates, the economy, earnings, inflation, and valuations.

* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR.

The State of the Trend

After reviewing the big-picture models and the fundamental backdrop, I like to look at the state of the current trend. This board of indicators is designed to tell us about the overall technical health of the market's trend.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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