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The S&P 500 had a very relaxing and enjoyable February in the Keys. Aside from a regrettable lower-back tattoo, the index basked in a combination of easy gains, virtually no significant down days, and historically low volatility.

Large Cap Growth is now the best performing segment YTD. After a red-hot 2016, Small Cap Value has gone nowhere in 2017.

After a 2016 year-end spike, our Ratio of Ratios has settled down below its 3% long-term median premium. Large Caps have experienced additional numerator expansion in 2017, with the S&P 500 up 6% versus the Russell 2000 2.3% gain.

Looking back at January’s robust “one-month” figure (2.07), the current result is disappointing. It was towering 13% above the long-term “one-month” average in January and now sits looking up at the historical “two-month” mean.

The Major Trend Index has remained in a tight, bullish band of 1.12-1.18 throughout the market’s post-election push to new highs. We are holding equity exposure in the Leuthold Core and Global Funds at 65-66%, the high end of their 30-70% boundaries.

Momentum factors are effective in differentiating EM sector performance, with High Momentum significantly outperforming Low Momentum. Unfortunately, there is a lack of investable EM sector vehicles.

Automobile Manufacturers, Health Care Distributors, and Homebuilding appear to be solid opportunities based on the current Group Selection Scores.

For managers who must remain fully invested in equities (or “paid to play,” as we’ve often called it), the level of inflation might prove a less important consideration than its character.

We should emphasize that any inflation pickup is likely to be a traditional, late-cycle phenomenon stemming from rising wage growth and rebounding commodity prices. We do not expect a secular move toward significantly higher inflation rates (say, north of 3.0%-3.5%).

Our Financials Sector Ranking has been strengthening since August—well before the Trump Bump. The addition of Regional Banks to our SI Portfolio boosts our Financials exposure to an overweight 26% versus the S&P 500’s 15% weight. Reinsurance and Developed Diversified Banks are also among the Attractively-rated options for diversification within the sector.

Over the last 70 years, stocks have made no cumulative progress when Producer Price Inflation runs above 4%. Returns have been average when PPI inflation runs between 2% and 4%—where it is today.

One of our disappointments with the Group Selection (GS) Scores in 2016 was their failure to latch on to the rebound in Energy groups.

A look at the potential upside for the median S&P 500 stock, based on the theory that each of four valuation ratios reaches its individual all-time high set during the last phase of the 1990s’ market mania.

Our disciplines remain bullish, but we periodically wonder whether we’re being too cavalier in keeping our tactical portfolios “almost” fully-invested (at 65% equities) in the face of valuations that are higher than those seen in all but perhaps 24 months of stock market history.

Higher quality Corporate bonds should be able to weather the rate hike quite well.

The hoopla falls short of that which surrounded birthdays #3-#7; based on the flood of assets into passive stock funds, it appears complacency has set in. Current bull close to becoming longest in history.

The S&P 500 was up 6.4% YTD through March 3rd, a bit above its average annualized gain of 5.9% since 1926. In other words, 2017 would be a good year if the books were closed today.

While we continue to view spread products favorably within fixed income, the March rate hike has yet to have its impact play out. In the near term, we will respect the “higher risk” signal and exercise caution.

Given the high likelihood of a March rate hike, we can’t help but wonder if the old adage of “three steps and a stumble” really holds.