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Regional Banks were sold from the Leuthold Select Industries Portfolio as challenges in lending and commercial real estate exposure weighed on the group. The portfolio remains overweight in Communication Services and Financials, while exposure to Consumer Staples, Energy, and Real Estate is zero. Despite recent volatility, Attractive-ranked groups continue to offer a diversified mix and are outperforming year-to-date.

As the market dismissed wild trade-policy uncertainty and the U.S. lobbing missiles at Iran, the index posted a tidy +11% for Q2 (following a Q1 loss of 4%). A little over half of the S&P 500’s return of the last three months was contributed by inspired performance from Microsoft (+33%), Nvidia (+46%), and Broadcom (+65%).

Read this week's Major Trend.

Value in Q1, Growth in Q2.

For the first time since November 2024, the Russell 2000 posted a better monthly return than the S&P 500! The excellent Q2 results for each segment have pushed up their absolute valuations, but both are still well short of their contemporary highs.

The Up/Down ratio reads 1.31—below average. The first quarter’s earnings reports failed to build on 2024’s broadening, but still modest EPS growth story. A reversion to the awful figures of 2022 and 2023 is not guaranteed, although trends in this data have been quite binary, especially over the last ten years.

We turned constructive toward higher-quality credit.

On the whole, the probability of an imminent recession has declined since our last update in April and now stands below 50%. Only two signals changed in this update, the most significant being the S&P 500, which improved from yellow to green.

Economic resilience that prompted the Fed’s pause is consistent with past cases. Equities and bonds have largely followed historical patterns. The exceptions—gold’s outsized return and the dollar’s weakness—highlight the unique risks introduced by the current political environment.

The risk-on rally since April produced a complete flip in factor performance vs. Q1. The year began with Low Volatility and Dividend factors leading the pack, posting positive returns even as the S&P 500 lost 4%. Q2 performance has High Beta, Momentum, and Growth far outpacing SPX’s nearly 11% gain.

Those who follow an investment approach embracing thematic groups, sectors, or industries will enjoy superior results if they construct a universe using narrower baskets. Our GSS process assigns stocks into well over 100 themes, offering the advantages of wider opportunity sets and greater diversification.

The S&P 500 continued its surge following the tariff scare—up 25% from the close on April 8th through the end of June. Based on history from 1957 to date, the index’s potential downside to median levels has deepened to -43% (vs. -41% as of May 31st). 

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In this session, Doug explores the unusual resilience of the stock market amid soft economic signals. He highlights how, historically, equities begin to falter well before a business cycle peak—but recent strength suggests investors may be looking past traditional warning signs.

Price momentum is one of the essential factors in a quantitative investor’s toolbox, consistently demonstrating its effectiveness across different asset classes and multiple market cycles.  The dimension of periodicity indicates that time frame is a key determinant of Mo’s potential. Shorter time frames exhibit a reversal pattern, however 9- and 12-month windows show nicely positive results.  Furthermore, Momentum's success at the stock level translates into excellent returns when companies are grouped into sectors and industries. Our research indicates that Mo is at its best when industries are more narrowly defined rather than being applied at the sector level.

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Read the latest MTI commentary.

All three strategies posted strong relative results in May. Core gained 3.3% with balanced net equity exposure, while Select Industries advanced 7.1%, outpacing both large and small cap indexes. Grizzly Short managed downside well, declining 5.0% in a sharply rising market. The Major Trend Index shifted to Neutral, signaling a more constructive technical backdrop.

Read this week's Major Trend. 

Stock-market dip buyers have again been handsomely rewarded, although it’s important to distinguish between words and action. Few (if any) being vocally bullish at April’s lows had told anyone to sell beforehand, and it’s likely their reward was more reputational than monetary.