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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

1) Why The Big Sell-Off In Stocks? 2) Why Didn’t Interest Rates Go Lower? 3) Why Was The Dollar Weaker?

We expect volatility to persist in the near term as the market deals with uncertainties surrounding the Fed rate hike decision and China. A defensive stance is recommended within the fixed income space.

In view of the last year’s steep decline in oil prices, Energy has been a frequent headline topic.

Value and Profitability performed well during August. Market Cap was a surprise underperformer given the stock volatility.

The overall widening trend in the last year has not shown any sign of reversing. 

Based on data for the week ended August 7th, the Major Trend Index dropped to a NEGATIVE reading of 0.90, led by declines in both the Attitudinal and Momentum/Breadth/Divergence work.

Re-deflation is the period where reflation gives way to deflation or disinflation. It has been so prevalent that it triggered a new “Higher Risk” signal in our Risk Aversion Index.

IT’s overall sector rank has been falling recently. Growth has slowed, which has prompted downward earnings revisions, while valuation ratios have remained steady or gotten pricier.