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Looking at year-to-date factor performance, Sentiment is the best performing; Momentum and Growth have also performed well.

Our current view is the lift-off will be December or later. Assuming inflation will pick up and the Fed hikes the rate by the end of 2015, stocks will perform relatively well, with international stocks a better bet than U.S. stocks.

Up/Down Earnings: Q1 Finishes Substantially Below Average

Small Cap Premium Jumps to 12%

First Half Of 2015 All About Growth

After rattling off nine consecutive quarters of gains, the S&P 500 quarterly winning streak is no more. We have to go way back to 1995-1998 to find a more impressive stretch (14 consecutive quarters). 

The MTI dropped to Neutral in July and net equity exposure was reduced to 55% in the Leuthold Core and Global Portfolios (this is down from the 61% target of recent months).

The Major Trend Index rose 0.02 to 1.10 last week, largely on the back of a 46-point jump in the Economic/Interest Rates/Inflation category. Despite the cyclical concerns we’ve detailed at length in the last few Green Books, the MTI—and stocks—refuse to give up the ghost, and the Core and Global Funds remain positioned with net equity exposure of 61%.

The MTI dropped to 1.08 in May, despite a move by the DJIA and S&P 500 to new cycle highs. Net equity exposure remains around 61% in the Core and Global Funds.

· The higher-highs/higher-lows pattern since the 10-year yield trough in January is encouraging but the bigger test is the 225-230 area.

While we view the industry group selection as the most important decision, looking at the sector level rankings also helps us identify broad trends. Here we highlight the top two rated sectors, currently, which also represent a combined >40% weight in our Select Industries Portfolio.

The steepening move in the yield curve is prevalent across many countries and is primarily driven by higher inflation expectations.

Until now, this group has been out of favor per our quantitative disciplines for the entirety of the bull market, making its newfound attractiveness particularly interesting. Even an 80% return in 2013 hasn’t brought relative performance back to levels achieved during the previous bull market.

While we acknowledge the volatile market environment, we still favor credits within the fixed income space.

While our stock market disciplines (including the Major Trend Index) are nominally bullish, we’re mentally gearing up to do something in the near future that was once considered ill-advised: Fighting the Fed.

Up front, we need to remind readers that the Major Trend Index is bullish at 1.08, and our tactical funds remain well-exposed to equities with net exposure of 60-61% (versus a range of between 30% minimum up to a maximum of 70%). That being said, we’re focused on the likelihood of a major defensive portfolio move in the near future, which probably comes as no surprise to Green Book readers (...what with us publishing a prepackaged obituary for the bull market just a month ago).

The Dow Jones Transports lagged the market badly again in May, and continues to stand tallest among the red flags we’re now monitoring.