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Bull markets seem to create their own moods that lead to fundamental developments being viewed in a mostly favorable light.

Factor performance during 2016 is the reverse of that of 2014-2015. Quants and smart beta funds focusing solely on Value have enjoyed the year, while multi-factor approaches have struggled. Value has been the only factor that has provided positive performance this year.

We summarize the factor category strength behind Education Services, Hotels & Leisure, and IT Consulting & Other Services.

Forces specifically driving many Financials groups include expectations for an ongoing yield rally and a steepening yield curve, tax cuts, and loosening financial regulation. While these outcomes remain largely speculation, the odds have improved and any of these developments would be a welcome change.

The reflation theme got an extra kick after the election. Companies with stronger credit profiles continued to benefit from tighter credit spreads.

With the Fed’s December hike priced in, we maintain a Favorable view toward spread products within fixed income.

Market reaction since the election has been right on the money. What we didn’t expect was the speed and the magnitude of the so-called “Trump Trade."

Allocation and performance details of our portfolios for December 2016.

The latest Major Trend Index report.

The S&P 500 gained 3.70% in November. Based on the 1957-to-date valuation metrics presented, the potential downside to its historical average widened by 1% from last month’s –19% reading.

While a raft of key market measures joined the S&P 500 at its latest cyclical high on November 25th, there’s at least one we’d prefer not to see on that list. Last Friday marked the first time in almost three years that the S&P 500 and the U.S. 10-Year Treasury Bond Yield closed at simultaneous 52-week highs. This has been a rare event since 1981, mainly because the path of bond yields has been relentlessly down over that time.

Click to read the latest Major Trend Index report.

Last week we overlooked a key milestone among the daily parade of new stock market highs: The Stock/Bond Total Return Ratio finally exceeded its cyclical high from the summer of 2007. Since July 13, 2007, the S&P 500 has generated a cumulative total return of +73.5%, just ahead of the U.S. 10-Year  Treasury Bond total return of +70.0%. These work out to annualized returns of around 6.0%.

The Major Trend Index dropped 0.04 to a ratio of 1.16 based on data for the week ended November 18th. It was pulled lower by small to moderate losses within each of its five indicator categories. Despite the MTI’s decline from the high levels that persisted throughout much of the fall, this “weight of the evidence” approach remains bullish for the stock market. Our tactical funds continue to target net equity exposure of 63-64%. 

It’s not only the electorate that’s polarized in the wake of last week’s presidential vote: Internal disparities within the stock market over the last several days have been some of the most extreme we’ve ever observed. For example, on Monday, November 14th, NYSE Daily 52-Week New Highs and Lows both exceeded 10% of Issues Traded. There’s no day that’s been even remotely comparable in almost 75 years of NYSE history.

The Major Trend Index rose 0.01 points to 1.20 in the week ended November 11th, with big swings within the MTI’s five factor categories essentially cancelling one another out. Net equity exposure in the Core and Global Funds remains at its 63% target, with no changes made in recent weeks. It’s clear, as one pundit put it, investors are betting on “tax-cut Trump” rather than “trade-war” Trump.

The S&P 500 Financials’ four-day, 11% rally has carried the sector to a new bull market high and the best closing level since May 6, 2008. The new high eliminates one of the long-term negative divergences from the Red Flag Indicator discussed periodically in the Green Book. Another longtime “Red Flag,” the Dow Jones 65 Composite, closed yesterday only fractionally below its December 29, 2014, all-time high. This is good action.

The Major Trend Index dropped 0.08 points to a ratio of 1.19 in the week ended November 4th, ending a three-month streak of readings above the 1.20 threshold. Nonetheless, the work remains decisively bullish, and we’ve made no recent adjustments to our tactical funds’ targeted net equity exposure level of 63%.

Our AdvantHedge gross composite rose 4.7% in October, outperforming the inverse S&P 500 (+1.8%) and performing inline with the inverse Russell 2000 (+4.8%).