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1st Quarter 2018 in Review

Our last note started by asking, “What is next?” We spoke about risks in the market and excess bullishness. Indeed, the market recently went through its first correction (a decline of 10% or more) in some time. Our research suggested taking a prudent approach to higher risk. The question now is; what course of action we should take?

A good place to start looking for answers is history. At major market tops we have often seen an initial move downward (since 1960 this first decline averaged 11%). After this move, there is often a rebound averaging 7%, which usually lasts about a month. Finally, there is another major leg downward pushing prices an average of 28% lower. This phase lasts around 250 days. These major market tops are not typical and normal corrections are less violent and actually provide a much earlier return to buying opportunities.

Market Outlook

Where are we now: in a bear market or just a normal correction? Our indicators have provided guidance for over 40 years and we look to them once again. Here are a few times they helped us navigate the markets. At the end of the first rebound in the 2011 bear market, our leading indicators were still negatively configured. This suggested higher risk and more pain ahead, which came in July and August. However, in the rebound after the late 2015 – early 2016 correction, our indicator array was positive, suggesting lower risk and potential opportunities in equities.

Today? Our leading indicators have become favorable compared to just a few short weeks ago. From a strategic standpoint there are still risks; namely expensive valuations and excessive optimism. These will need to be dealt with eventually, perhaps later in the year. For now though, the intermediate picture has improved. While we would avoid extreme aggressiveness in stocks, our indicators no longer suggest taking excessive caution.


* S&P 500 is a leading indicator of US equities and is meant to reflect the risk/return characteristics of the large cap universe. Dow Jones Industrial Average is a priceweighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. Typical Stock refers to median stock in the JIR universe which follows over 8,000 stocks.

Market Update March 2018 
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James Economic Outlook 2018  
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Market Update December 2017 
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Market Update September 2017 
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Market Update June 2017 
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Market Update March 2017 
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Market Update December 2016 
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Market Update September 2016 
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Market Update June 2016 
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Market Update March 2016 
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Market Update September 2015 
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Market Update June 2015 
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Opportunity In Greek Crisis 
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Market Update March 2015 
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Market Update December 2014 
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Market Update September 2014 
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Market Update June 2014 
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Market Update March 2014 
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Market Update September 2013 
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Topping Markets June 2013 
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Market Update June 2013 
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Market Update March 2013 
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Market Update December 2012 
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James Economic Outlook 2013 
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Market Update September 2012 
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Why Own Bonds? March 2012 
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Market Update March 2012 
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Market Update December 2011 
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Market Volatility August 2011 
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How to Offset Inflation May 2011 
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Market Update September 2011 
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No American Default July 2011 
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Economic Slowdown June 2011 
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Topping Markets January 2010 
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New Stimulus Won't Cure Economic Woes July 2009 
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Rally at Hand December 2008 
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Weathering the Storm
October 2008
 
Watch The Interview!
Buy Stocks Mar 2008
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No Quick Fix Jan 2008 
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Further Declines Ahead July 2007 
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James Economic Outlook 2012 
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James Economic Outlook 2011
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James Economic Outlook 2009
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James Economic Outlook 2008
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James Economic Outlook 2007 
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James Economic Outlook 2006 
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James Economic Outlook 2005 
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James Economic Outlook 2004 
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James Economic Outlook 2003 
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