As May comes to an end, US equity markets have moved up modestly. Certainly not the strong run of last year, but gains nonetheless. Things are going great, right? Well, I’m not so sure all is well underneath the surface. Here are a few things that concern me: - Revised 1st Quarter GDP came in at negative 1%. Without spending on Obamacare it is about negative 2%. Now this is blamed on the weather by most observers out there, but I find it worrisome that it was that severe. We will likely rebound in the second quarter, but I wonder… - Bond yields have plunged. As of May 30th, the 10 year Treasury is yielding under 2.46%, down almost a half percent from the beginning of the year. We keep hearing that the economy is heating up, with growth at 3% or above in the second half. Then why are yields dropping instead of rising? We are taught that stronger economic prospects should lead to higher interest rates, yet yields have dropped sharply. What does the bond market know that the stock market doesn’t? Hmm…. - IPOs with negative earnings. According to SentimenTrader.com the percent of initial public offerings that are money losing is now at 83%; the highest level since the 84% in 2000. Uh-oh. - The market is not cheap. A few analysts hold out that the market is cheap; most at least acknowledge the US market is fully valued and more expensive than most foreign countries. The challenge is that those measures that have historically the best predictive record suggest a market that is significantly overvalued. - Buying stocks on margin is at record highs. We haven’t seen these levels of buying stocks on margin since the peaks of 2000 and 2007. By itself maybe not too worrisome, but combined with the above concerns? The bottom line is we don’t know whether this will be a great year for US stocks, or if we are on the cusp of a bear market. The only thing for certain is that the market will fluctuate. But that being said, investors would do well do be aware of the above concerns, ensure they are fully diversified, and possibly rebalance their portfolio if they have not done so recently.