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Many assume that stocks and industries exhibiting high price momentum suffer disproportionately during the eventual bear market. Surprisingly, the high momentum stock portfolio has suffered an average bear market loss that’s about a quarter less than that of the low momentum portfolio.

Energy groups continue to rate poorly in our quantitative work, but change will probably be afoot in the second half.

The U.S. Dollar Index has recovered about half the losses from a two-month, -7% setback from the 12-year peak it established in March.

Our criticism of the widespread trust in “forward earnings” has sometimes been harsh, but consider the following: the latest 12-month forward EPS estimate for the EAFE index is $122.71, virtually matching the forward estimate that was made in January 2006.

Stocks selected for inclusion in the MSCI ACWI have outperformed from the day of the announcement to the day of implementation, while the opposite is true for stocks which are removed. Long-term, however, stocks included in the index do not outperform compared to those that were removed.

High Quality stocks had another winning quarter on a relative basis returning +0.1% in Q2, while Low Quality stocks lost 2.8%. Small Cap High Quality stocks also beat their counterparts.

Net outflows continued as the cushion from credit spreads is still inadequate...So far risk contagion from the Puerto Rican bond default has not been an issue. Munis still look attractive relative to Treasuries, and investment grade Corporates...The improvement in credit markets and inflation expectations looks more shaky as oil prices broke below the recent tight range and uncertainty around Greece adds to the overall risk aversion. We reduced these bonds to Unfavorable.

The last time this group held an Attractive rating for an extended period of time was 2000. Based on the group’s extended underperformance, induced by repercussions of the global financial crisis, we think it may finally be poised for a turnaround. 

Rising rates have set fund flow trends back on course to those seen over the last two years. Cumulatively, equity funds have now captured more net cash YTD than that collected by bond funds.

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%.