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We’re intrigued that Industrials was the first broad sector to eclipse its pre-correction high, and is still the only one to accomplished that. A market technician might argue that the divergent strength in such an economically sensitive segment is a bullish portent for the economy and stock market—but history doesn’t support that view.

Since the low in Oct. 2022, SPX is up 66%—typical for a bull market of this age; however, the broad-market stampede distinguishing a youthful bull never happened. Yet, those four years of futility were not in vain—the valuation profile for the average stock has improved markedly.

We’re trying to draw obvious parallels between today’s bifurcated stock market and the late 1990s. But here, we do it solely to illustrate that the NYSE Daily Advance/Decline Line may be giving a too-rosy picture to market technicians—and the vastly greater number of closeted technicians. 

The NYSE Daily Advance/Decline Line hit a new high in May, which has traditionally been an “all-clear” for the stock market on a three- to six-month basis. Yet, the A/D Line’s strength doesn’t square with the rebound’s resumption of Large Cap leadership.

There have been wild gyrations in the S&P 500 Cyclical/Defensive Ratio over the last year against a backdrop of historically high Cyclical valuation premiums. In other words, there’s no recession bet priced into the equity segments that should most reflect it.

It turns out the “front-running” prophesied by bullish economic analysts has occurred in Prices, not New Orders. Such a backdrop is usually challenging for stocks. 

The sheer size of the equity market relative to U.S. GDP (roughly a two-to-one ratio) means that market swings—which always influence the economy—have taken on a more prominent role. 

There’s a strong argument that the internal peak of the bull market is behind us. The Equal-Weighted S&P 1500—featured prominently in this section this month—is still down 12% from its November 25th bull market peak.

Net income soared almost 24%, with each step in our earnings growth waterfall registering in the green. Pretax margin expansion contributed 9.2%; however, this last step of the waterfall is always influenced by unusual items—and Q1 saw an abnormally positive impact from lower write-offs.

Developed due to the growing interest in private debt and equity, these vehicles offer a degree of liquidity and transparency within a regulated, standardized fund format. While fees and expenses are lofty versus OEFs and ETFs, interval funds’ relatively high current income may be very appealing to some.

Read this week's Major Trend.

The S&P 500 is back within spitting distance of its all-time high, and, as one would guess, our downside calculations are stretched almost to their contemporary extremes.

Growth quickly U-turned and led the market higher over the last two months, while low volatility stocks have been discarded. Momentum has weathered the volatility well so far—especially within small caps.

While the “Trump put” materialized in May, the markets are again becoming complacent toward both policy uncertainty and geopolitical risks.

Despite heightened uncertainty from shifting trade policies, credit markets remain relatively stable—at least for now. While bank lending standards are tightening and loan demand is softening, market-based indicators like credit spreads and bank stock performance suggest credit risk is contained. If that holds, the broader economy may avoid serious damage, even as tariffs rise.

The strategy holds equity groups that participate when the market moves higher, as well as industries that are more defensive and well insulated from tariffs. 

The 19% surge from the closing low on April 8th, through May, has been fueled by the largest firms. Out of the Mag 7 names, only Apple (+17%) underperformed the overall index; the average gain among the other six registers at +33%. Let’s not forget, it was these very names that led the S&P 500 lower—and the equal-weighted Mag 7 basket is still down 5% YTD.

In the Large- and Mid-Cap spaces, Growth’s two-month surge erased Value’s YTD advantage. Since the end of March, RB Growth: +11%; RB Value: -3%; MC Growth: +13%; MC Value: +2%.

Our Ratio of Ratios continues to go nowhere, as six of the past seven months registered a Small-Cap discount of either 25% or 26%. Large-Cap outperformance and a worsening Small-Cap earnings profile seem to have balanced out overall relationship.

The Up/Down ratio reads 1.30—below average. This “two-month” print breaks a streak of four successively higher readings, and is even more disappointing given that last year’s look-back comparison for this “two-month” period was very weak (1.18).