Monday , 1 May 2017


What Does the “Market Map Model” Say About Future Direction Of U.S. Stocks, Interest Rates & Commodities?

If the past long-term cyclical correlations between interest rates, equities, and market mapcommodities were to play out as they have done going back to the 1880s, U.S. stocks and interest rates should continue to rise as commodities either fall or underperform according to a 60-year cyclical pattern model referred to as The Market Map.

The above introductory comments are edited excerpts from an article* by Cris Sheridan (FinancialSense.com) entitled Is A Long-Term Secular Bull Market In Stocks Possible?.

The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!)and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Sheridan goes on to say in further edited excerpts:

Below is a simplified view of the cyclical pattern identified by Dan Wantrobski from Janney Capital Markets, which he calls “The Market Map” (click image to enlarge):

market mapSource: Janney Capital Markets

Although the chart above represents approximate long-term correlations between stocks, commodities, and interest rates (bonds), and not exact turning points, it is interesting from a “big picture” point of view…Combining all three into the above diagram is rather unique and probably new to most as a way to help identify longer-term shifts in the market and between asset classes.

With interest rates and stocks having already put in what appear to be long-term bottoms and commodities also trending downwards from their prior record highs, this long-term cyclical framework suggests that we are somewhere in the “We are here” portion of the chart, coinciding with a transition from a deflationary bear market that started in 2000 to a new secular inflationary bull market cycle.

According to Wantrobski the three main drivers of these long-term cyclical shifts are:

  1. valuation,
  2. demographics, and
  3. credit.

Of the three, valuation is probably the most controversial given current prices. Of the 130+ years shown in Janney’s long-cycle model, the only time where the market experienced a similar inflection point was during the 1940s, which preceded a multi-decade bull market in stocks well into the ’60s.

Should we expect the same type of run in stocks from current stretched levels? This seems highly doubtful, especially given that stocks were near all-time valuation lows during the ’40s as opposed to today where they stand near the highs.

Given the difficulties in reconciling this as the beginning stages of a long-term secular bull market with current overstretched valuations, there are a couple obvious ways this could play out.

  • Stocks could correct at some point in the near future, which would bring valuations closer to long-term historical averages.
  • Another perhaps unthinkable possibility is that stocks continue to climb higher in the secular bull market scenario to close the gap or eventually overtake the prior valuation highs set during the 2000 tech bubble.

Although the first scenario seems more likely, given the historically unprecedented scale of intervention and active participation by central banks in the stock market today, it does not seem unreasonable to question whether prior valuation records might be broken.

If we have indeed passed that inflection point…[then] we should see stocks continue to outperform both bonds and commodities over a longer-than-expected timeframe.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://seekingalpha.com/article/2413235-is-a-long-term-secular-bull-market-in-stocks-possible?ifp=0

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