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Morton's Fork By John P. Hussman, Ph.D.



* August 8, 2016

Despite the bump in the S&P 500 to marginal new highs on better-than-expected employment figures last week, the expected market return/risk profile remains in the most negative classification we identify. That said, I’ve emphasized in recent weeks that some trend-following components among our measures of market internals have improved, and while the overall profile hasn’t improved, we’re also not pounding the tables about near-term market losses. Concerns about major, imminent losses would become much more pointed in the event the S&P 500 breaks below the 2000 level. At present, we continue to classify the overall risk/return profile as negative, but characterized by "unpleasant skew," with a short right tail and a fat left tail. Over the near-term, the single most likely outcome in any given week is actually a modest gain, but those outcomes are coupled with a smaller probability of wicked losses, so the "mode" of the distribution is positive, but the average outcome is significantly negative (the chart in last week's comment, Impermanence and Full-Cycle Thinking, includes an inset to illustrate what this looks like).

http://hussmanfunds.com/wmc/wmc160808.htm

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