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While most factors performed well during the January sell-off, those providing stability worked the best. Low Volatility, Profitability, and Size were notable outperformers.

The S&P Industrials’ downside to mean valuation (excludes Utilities and Financials) is 24%, about 3% less than last month’s reading.

Median YOY revenue growth figures for Q4 look awfully similar to the past few quarters—many market cap segments and sectors barely cling to positive readings. Market action is starting to take some of the fluff out of the LTM Price to Sales ratio.

Small Cap underperformance in January helped push our Ratio of Ratios into discount territory for the first time since the end of 2008.

Despite Growth lagging severely in the two smaller market cap segments, Large Cap Growth, the darling of 2015, was the best performer in the brutal month of January.

Although the volatility measures couldn’t match last August, the S&P 500 still managed to reach a new contemporary low of 1812 on January 20th. Our Equal Weighted Average has had just one monthly win since its relative strength peak in March of 2015.

Our AdvantHedge gross composite gained 9.9% in January, outpacing the inverse performance of the S&P 500 (-5.0%), NASDAQ (-7.8%), and Russell 2000 (-8.8%). AdvantHedge finished 2015 with a gain of 5.5% compared to the S&P 500 gain of 1.4%.

Select Industries gross composite lost 8.1% in January after finishing 2015 up 0.4%. The S&P 500 fell 5.0% in January and closed 2015 up 1.4%. Small Cap underperformance and rising correlations made January a tough month for our group work.  

Major Trend Index Negative: Net Equity Exposure Remains 38% - 39%

Based on data through last Friday, the Major Trend Index rose 0.07 points to a ratio of 0.80. It benefited from a huge jump (115-points) in the Attitudinal category and a solid gain in the Intrinsic Value work. Steady improvement in these countertrend categories, combined with deeply negative readings in the Momentum/Breadth/Divergence work, is characteristic of an ongoing cyclical bear market; the body of evidence suggests it’s still too early to hit a major low in equities.

The Major Trend Index fell 0.06 points to a ratio of 0.73, using last week’s data (week ended Friday, January 15th). Essentially all of our trend-following work is now confirming that a cyclical bear market is underway. In fact, the new closing low this week, on January 20th, confirmed our suspicion that the S&P 500 decline from its high close on November 3rd represented the second leg of the bear market decline from the bull market high May 21st.

Equity funds with a foreign focus remained the most popular fund category in 2015 (through November) as measured by net cash inflows from investors.

The Major Trend Index dropped 0.13 points to a ratio of 0.79 using data through January 8th. Several trend-following sub-models confirmed what our other "anticipatory" tools have been telling us for many months: a cyclical bear market is underway. Bearish market action to open 2016 has driven our tactical funds’ net equity exposure down to the 34-35% range. We’ll consider covering a portion of the equity hedge if evidence of a short-term low appears.

Our AdvantHedge gross composite gained 3.5% in December, outpacing the inverse performance of the S&P 500 (-1.6%) and NASDAQ (-1.9%), but lagging the inverse of the Russell 2000 (-5.0%). 2015 was a great year for AdvantHedge, finishing with a gain of 5.5% compared to the S&P 500 gain of 1.4%.

The Portfolio lost 2.3% in December and finished 2015 up 0.4%. The S&P 500 lost 1.6% in December and closed the year up 1.4%. In 2015, our Attractive-rated group composite average was down 0.2%, ahead of the group universe composite average which ended the year down 5.5%. Small Caps and international securities (ADRs) are the main drivers behind the group universe underperformance.

MTI Fell To Negative; Equity Exposure At 38%

The Attractive-rated groups outperformed the Unattractive groups by 15.5% in 2015. This is the third positive year in a row, and the best performance differential since 2008.

Leuthold Core and Global Funds’ net equity exposure trimmed back to 38%. It is now our opinion that the early January sell-off constitutes part of a second downleg in a cyclical bear market that began in May 2015.

Financials rose in December to rank #1 among sectors for the first time since the start of the financial crisis. In-line with our quantitative disciplines, we added a new Financials group to the Select Industries Portfolio: Regional Banks.

The most compelling evidence that a bear market is underway may not be what’s been punished (Transports, Small Caps), but what hasn’t. We believe the final bull market highs of any composite or sector index were recorded on December 29th.