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NVIDIA’s rise has reshaped the S&P 500 like never before. In just 18 months, the company has doubled its share of the index, hitting an unprecedented 8% weight. What does that mean for investors, for the balance of power among mega-caps, and for the old “4% Club” warning system? Phil Segner breaks it down in this episode of the Leuthold Podcast.

The Core, Select Industries, and Grizzly strategies all posted declines in July, though Grizzly held up relatively well in a strong equity market. Core remains modestly net long with the Major Trend Index in High Neutral, while Select Industries saw strength in cyclical areas like Travel & Leisure and Banks but weakness in Education Services and Health Care. Positioning reflects targeted overweights in sectors and industries with favorable growth and valuation profiles, while avoiding areas with heightened risk or weak fundamentals.

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The cyclical sectors of Consumer Discretionary, Industrials, and Materials have climbed from the bottom of our sector rankings, three months ago, to now occupy the fourth, fifth, and sixth positions, respectively.

NVDA’s 13% gain contributed just under half of the S&P 500’s +2.2% return for the month. The chipmaker ended July with an 8.1% index weight. Since 1990, there’s never been an 8% month-end weight from a single firm. The weight of NVDA and MSFT is equal to the combined weight of the smallest 332 firms in the S&P 500.

Our Deep Cyclical Group has been on a tear over the past three months, rising 18%. The S&P 500 High Beta Index has done even better, with a 30% gain over that time.

This is the narrowest discount the vignette has registered in three-and-a-half years, although we’re not far off the 25% average discount for the period.

The Up/Down ratio reads 1.84. This figure is above our 41-year average of 1.82 for the first time since January 2022. That gap of 13 quarters between above average “one-month” readings matches the longest previous streak, which was the lead-up to and during the depths of the Financial Crisis.

With the general backdrop of an easing Fed and expansive fiscal stance, the economy should be doing okay.

Stablecoins are reshaping the financial landscape by combining the stability of the U.S. dollar with the speed and global reach of crypto technology. Backed by short-term Treasuries and used across DeFi, payments, and remittances, they’re becoming digital cash for the internet era. With new U.S. legislation unlocking growth, their impact on banking, global dollar dominance, and Treasury demand is just beginning.

The U.S. dollar has seen some interesting dynamics this year, so we’ve updated our U.S. Dollar Monitor. Currently, the model implies a higher likelihood of dollar strength, or at least a decent rebound over the next few months.

Though it’s ramping up daily, the level of retail participation in the stock market is not quite on par with that observed during the last gasp of the Technology Bubble. Maybe a phase of full-blown euphoria still lies ahead. 

The Cyclical/Defensive Relative Valuation Ratio jumped to yet another record in July, with Cyclicals commanding a valuation premium of 23%. Put differently, investors have a very strong implicit bet that the economic expansion will continue.

The U.S. economy is now mired in what we view as a temporary phase of stagflation. To our way of thinking, the “flation” is, in fact, exacerbating the “stag”—a situation that should soon self-correct in an unpleasant manner.

The LEI’s recession warning in June 2022 was woefully premature and has persisted for so long that it’s now met with eye-rolls. Nonetheless, economic momentum—specifically the lack there of—is why it may be time to take that ominous signal seriously.

The market lacks the traditional bubble feel because investor giddiness is simply not shared by consumers—which is markedly different that of the late 1990s. There is a huge disparity between confidence about stock price gains vs. expectations for consumers’ near-term economic well being—a gap that did not exist during the Tech Bubble.

Given the prevailing conditions at the beginning of this bull market, the S&P 500 has been an overachiever, though the same can’t be said of the broader market. This translates to an opportunity for active equity managers that nearly matches conditions in Y2K—and at a time when the active manager pool is now dwindling.

Nine of ten components in the LEI are signaling there’s trouble dead ahead. Yet, the 12-month momentum of the sole outlier, the S&P 500, still looks sufficient to forestall an imminent slide into recession. Additionally, the index’s short-term strength also supports the argument that SPX is “too strong.”

As a testament to the severity of the 2000-2002 Tech Wreck, performance of recent years’ laggards, like the Equal-Weighted S&P 500, S&P MidCap 400, and S&P SmallCap 600 are still well ahead of large-cap Growth on a 25-year basis.