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We maintain our favorable view towards spread products within fixed income, but given the election and the Fed hike risk, caution is warranted.

The upcoming election is likely to have wide-ranging impacts on both monetary and fiscal policies and we expect election risk to overshadow the Fed policy risk for the time being.

The S&P 500 has quietly put together a string of four consecutive modestly-positive quarters—up nearly 13% for that stretch. Volatility in the most recent quarter was almost non-existent. The only sector not trading with a LTM P/E above its five-year median is Consumer Discretionary.

Growth remains especially cheap relative to Value in Small Caps and our Royal Blue segment. Small Cap Growth was the best performing segment for Q3 (+9.2%).

Matching our 13-year low made last month, our Ratio of Ratios shows Small Caps at a 6% discount to Large Caps using non-normalized trailing operating earnings.

Our final Up/Down Ratio for Q2 sports a reading of 1.22. As was the case the two previous months, our final number is the highest since the first quarter of 2015.

A client inquiry led us to take a fresh look at the relationship between current valuations and subsequent stock market returns, which is a regular feature in our Benchmarks publication.

Overall, this work supports a constructive intermediate-term stance toward stocks; our tactical portfolios are positioned with equity exposure of 63%—a posture we consider aggressive given the relative maturity of both the economic expansion and the cyclical bull market.

Bond mutual funds, bond ETFs, and domestic-focused equity ETFs are the only categories registering material positive cash flows YTD.

The S&P 500 gained 0.02% in September. Based on the 1957-to-date valuation metrics presented, downside to its historical average narrowed by about 1% from last month’s –21% reading.

The Major Trend Index edged up 0.02 to a ratio of 1.27 for the week ended September 30th, remaining within a narrow but decisively bullish band between the 1.20-1.30 level for the ninth consecutive week.

Small losses in four of its five categories drove the Major Trend Index down 0.04 to a ratio of 1.25 in the week ended September 23rd. Overall, the weight of the stock market evidence continues to tilt bullish and our tactical portfolios remain fairly aggressive positioned with net equity exposure of 63%.

The Major Trend Index rose 0.05 to a ratio of 1.29 in the week ended September 16th, representing another new high for the rally that began in February. Moderate gains in Supply/Demand and Momentum/Breadth/Divergence categories were behind the improvement.

Last Friday’s stock market air pocket had little impact on the Major Trend Index, which remained in moderately bullish territory at 1.24 after a weekly decline of 0.02. Swings within the five categories were muted despite the rise in stock and bond market volatility.

The S&P 500 gained 0.1% in August. Based on the 1957-to-date valuation metrics presented, downside to its historical average narrowed by about 1% from last month’s –22% reading.

Our AdvantHedge gross composite fell 0.1% in August, performing in-line with the inverse S&P 500 (+0.1%), but it outperformed the inverse Russell 2000 (+1.8%) and NASDAQ (+1.2%).

Select Industries gross composite gained 0.4% in August, besting the S&P 500 gain of +0.1%. Global Industries (based on Global Industries, L.P. gross return) outperformed the MSCI ACWI in August, gaining 0.8% and is down 0.6% YTD.

Major Trend Index Positive: Equity Exposure At 63%

The Momentum/Breadth/Divergence category remains the key driver behind the MTI’s resurgence; that category’s latest net reading of +1028 is the most bullish since May 2010.

The ER price impact has shifted higher post 2008-2009 financial crisis, and the movement has been more pronounced in the Small Cap universe. A look at analyst coverage and accuracy of estimates.