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Select Industries gross composite lost 5.6% in August, outperforming the S&P 500 (-6.0%). Global Industries (based on Global Industries, L.P. gross return) lost 5.2% in August, beating the MSCI ACWI (-6.8%).

The MTI ratio started the month with a neutral reading and subsequently plummeted into negative territory, where it remains today. We are maintaining a defensive position and cut equity exposure to 35%, down from 38% in early-August, and 48% in late July.

Amidst the Energy carnage, the Oil & Gas Refining & Marketing group is the exception, having returned over 7% YTD. Refiners are able to perform well in a variety of oil price scenarios—and tend to thrive in a falling crude oil price environment.

Among the various arguments put forward by those believing the recent decline is no more than a correction, the most difficult for us to address is the common claim that “there’s no recession on the horizon.”

When the “most hated bull market on record” finally suffers a steep decline, it’s reasonable to expect that the hatred might evolve into true revulsion.

While we have a high level of conviction on our August bear market call, we should emphasize that our disciplines trump opinions.

In our naïve way of measuring market moves, WTI crude oil is about 15% from its $53.27 December 31st closing price. But thanks to financial television, we’re beginning to wise up.

The Major Trend Index broke into negative territory shortly after the August Green Book was released, with an initial bearish reading of 0.90, based on data for the week ended August 7th. That move prompted us to cut net equity exposure in tactical accounts to 38% (down from 48%); ensuing market action trimmed net exposure in the Leuthold Core and Global Funds to about 35% by September 8th.

Despite the group’s big losses since May, the results show Small/Micro Cap Biotechs are still richly valued. As market volatility heats up, this group faces additional downside risk.

Despite the down market, Large Cap Growth expanded its YTD outperformance over Value—now almost 11%. 

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S&P 500: Worst Month In Three Years