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Read this week's Major Trend.

The S&P 500 got within spitting distance of its January high (price) by gaining 3.6% in July.

Following a seven-month stint as the highest-rated sector overall, Consumer Discretionary relinquished the throne to Health Care.

Movies & Entertainment & Broadcasting’s Group Selection (GS) Score has been steadily improving of late; it rose to High Neutral in March and pushed up to Attractive two months ago. Currently a member of the Consumer Discretionary sector, this is a less-correlated option to the many retail industries also currently ranking strongly among the Discretionary components.

Value finally performed well during July, turning in its best month of 2018 on a spread basis. While the factor category is still deep in negative territory for the year, almost 85% of its underperformance is coming from the worst quintile outperforming the universe; meaning Value has mostly struggled because of expensive stocks outperforming, not cheap stocks lagging.

The index, still a bit shy of its all-time closing high, did set a new total return high on July 25th—six months after the trouble began in January. The FAANG stocks had some divergent components in July  but still provided a big boost for the S&P 500.

Our Royal Blue Low P/E Tier finally outperformed the High P/E Tier for the first time since November. YTD, Value stocks still lag Growth in all market cap tiers.

The recent run up in Small Cap stocks, coupled with a less rosy (though still fantastic) trailing earnings profile, has given us the largest Small Cap premium we’ve seen in three years.

As we digest the first round of Q2 earnings reports, our Up/Down Ratio sports another outrageous reading of 3.67. If you need a chart to make a case for peak earnings growth, here you go.

While we believe overall volatility is likely to stay high, both interest rates and investment grade spreads are at reasonably attractive levels to provide a downside cushion.

Our Risk Aversion Index fell enough last month to generate a new “Lower Risk” signal. This is certainly not a “no brainer” risk-on signal. We recommend higher quality spread products within fixed income.

2018 has been very atypical so far. But if the historical pattern is any guide, a near-term pull back should be expected in most equity markets, followed by nice year-end rallies.

The underperformance of investment grade credit this year prompted the question of whether a risk-barbell portfolio of safe Treasuries and risky high-yield bonds may offer better performance than a middle-of-the-road portfolio of 100% investment grade corporate bonds in a highly-uncertain environment.

For the last year, we have labeled the S&P 500 Price/Sales ratio—which has returned to its Y2K bubble levels—the “scariest chart in our database” (Chart 1). Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade.

A large gain in the Momentum category was almost entirely the result of a positive flip in a key market Reversal Model which had been bearish since March. While the long-term record of this model is good, its BUY signals over a forward three-to-six-month horizon have been less reliably bullish than, say, a breadth or momentum “thrust.”

Yesterday was the six-month anniversary of the S&P 500 bull market high, and the index celebrated the event by nearly setting a new peak. Meanwhile, the S&P 500 Total Return Index did make a new high on Wednesday.

Sentiment toward stocks continues to heat up. Our S&P 500 Liquidity Premium shows that speculation in individual stocks is picking up relative to ETF trading, a negative sign. In addition, activity in stock index options shows the “smart money” rebuilding a bearish position.

While momentum has been the best-performing stock selection factor in 2018, there’s a less well-known and purely fundamental factor that rates almost as well: A company’s ability to lose money!

EPS gains, driven by the corporate tax cut, have led to improvement in several of our valuation measures, but the scope of these gains is small relative to the U.S. market’s degree of overvaluation.

We have recently been struck by the tremendous valuations being awarded to companies that have never turned a profit. Tesla, Spotify, Workday, and Square all sport market caps above $25 billion based not on their recent earning power (which is zip), but on the hopes that they will one day move well into the black.