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Portfolio managers who tilt toward Value or Growth stocks have long known that each style carries with it an inherent bias toward some sectors and away from others. Our recent piece, Value Style’s 100-Year Flood, highlighted the significant role that sector weights (overweight Financials and Energy, underweight Technology) played in Value’s decade-long stretch of underperformance.

We think the odds are better than even that the September 20th S&P 500 high will stand as the stock market high for 2018, and perhaps also as the high for a historic event begun back in 2009. We’re well-prepared for that possibility, with the Leuthold Core now positioned today with net equity exposure of just 37%.

The weakening we’ve observed for several weeks in most internal stock market measures began to spread last week to the “externals,” i.e., the major market indexes like the DJIA and S&P 500. Still, we are amazed these indexes remain so close to their cycle highs in light of the extent of subsurface damage reflected in the daily and weekly breadth figures.

We’ve previously noted the narrowing performance divergence between top- and bottom-performing Emerging Market (EM) countries in recent years.

After a strong 2016 and a “Bridesmaid” (i.e., sector runner-up) performance in 2017, the Materials sector seemed primed to benefit from the “late cycle” character of the economy in 2018.

“Three steps and a stumble” was the old rule of thumb for timing the impact of Fed tightening on the stock market.

We should emphasize that our characterization of stocks as dangerously overvalued applies only to the U.S. market.

The longevity of this bull market is impacting tactical asset allocators in ways great and small.

Regardless of how it’s measured, the liquidity available for global stocks continues to run off.

Our bearish stance could be tested by the arrival of the seasonally strongest six-month window of the four-year electoral cycle. Since 1926, November of the mid-term year through April of the pre-election year has produced an average un-annualized S&P 500 +16.4% total return.

In September, the percentage of S&P 500 stocks outperforming the S&P 500 index fell to 40.7%, the lowest reading since mid-2012. Breadth has followed a conventional path over the course of this unconventional bull market; in the current phase, the odds of outperformance are steadily diminishing.

In the first week of October, the share of newsletter bulls topped 61% just as the NYSE percentage slid to 41%. Maybe it’s a seasonal thing… the last time that happened was October 2007.

Throughout the spring and summer, the market could alternatively be characterized as “divergent” or “disjointed”—but until very recently it could not be considered “distributive.” Now, Mid and Small Caps have hit a short-term air pocket and breadth figures were exceptionally poor at September’s scattered highs in the DJIA and S&P 500.

We’ll never forget the first time we read a SELL recommendation for a stock. It was nearly 30 years ago and we were two weeks into our first job with a small equity management firm.

The S&P 500 posted its best quarterly price gain (+7.2%) since the fourth quarter of 2013. However, 37% of the year-to-date returns have come from three stocks: Amazon, Apple, and Microsoft. Those three firms have added a combined $737 billion in market cap since the start of the year.

Growth stretched its fantastic contemporary outperformance run to seven quarters, besting Value stocks once again. Since the end of 2016: Royal Blue Growth +53%; Royal Blue Value +21%.

This article summarizes our current research into the interaction between factors and sectors. We find that sector weights have a significant influence on some factor results, while the true factor impact is the key driver for others. Watch for our full report coming next week.

The sharp divide in performance between Small Caps and Large Caps moved our Ratio of Ratios below the long-term median premium for the first time in seven months.

We’ve reached the halfway point of the 2018 corporate earnings bonanza! The final Up/Down Ratio for Q2 2018 stands at 2.06—the highest “three-month” figure we’ve seen since 1984.

The Leuthold Core and Global Portfolios both lagged their 100% equity benchmarks in September.