Latest Research

The “cash on the sidelines” is a Supply/Demand argument that we’ve struggled with even in the most bullish of times; every purchase of a security is matched with a sale. But even taking the argument at face value, current holdings of retail investors and mutual fund managers suggest that the cash left the sidelines long ago.

The second month of Q1 earnings reports registered an Up/Down Ratio of 1.27. Following the theme from last month, this “two-month” score is well below average.

Nudged higher by Small Cap outperformance in May, our premium is little changed month-over-month and remains in its new 5-10% habitat.

Small Cap Growth stocks were the clear outperformers in May, up almost 4%. Growth stocks are still in favor when comparing YTD figures, with the performance gap especially prevalent in the Small and Large Cap spaces.

Momentum and Sentiment bounced back in May, while Value and Quality struggled.

S&P 500: Yet Another Record High Close In May

The Major Trend Index dropped 0.02 to 1.11 in the week ended May 22nd, triggered mainly by a 36-point decline in the Supply/Demand category. While the MTI’s cushion relative to its 0.95-1.05 neutral zone has shrunk from a late-April high of 1.20, it continues to support a bullish near-term case for the stock market. Both the Core and Global Funds remain positioned with net equity exposure of 61%.

The Major Trend Index dropped 0.03 to 1.13 in the week ended May 15th, led by losses in the Momentum/Breadth/Divergence and Supply/Demand categories. The S&P 500 closed at new bull market highs in three of the last five trading days, but the breadth and leadership trends underlying those highs are more consistent with a tiring market up leg than a sudden acceleration higher. Still, the combined evidence is enough to keep us postured with net equity exposure of 61% in the Core and Global Funds.

The Major Trend Index was unchanged at a moderately bullish reading of 1.16 using data for the week ended May 8th, with none of the five component categories recording a weekly change of over 24 points. Both the Core and Global Funds are positioned with net equity exposure of 61%, unchanged from the previous week.

A new position in Drug Retail was added to the Select Industries Portfolio in April. The latest update to the Group Selection (GS) Score showed improvement in several factor categories which pushed the overall score back to Attractive.

Reinsurance has rated Attractive for a little over one year, but the latest round of GS Scores sent this group’s score skyrocketing, and it now ranks fourth highest among all 115 industry groups. Select Industries Portfolio overall insurance industry group exposure now 8.1%.

While Large/Mid Cap Biotechnology companies are boasting rising profitability, better cash flows, and stronger drug pipelines, the Small/Micro Cap Biotech firms, in general, have little tangible to show and valuations may be above the comfort zone.

Factor performance reversed course again in April, with the spike in oil driving most of the volatility.

Health Care, Info Tech, and Consumer Discretionary are the top three rated broad sectors.

The safest highs to sell in the stock market are “lonely” new highs. Fortunately, the April 24th bull market high in the S&P 500 was anything but, as that index enjoyed a varied swath of Large Cap, Small Cap, and foreign company (although the DJIA was a mysterious no-show).

Conventional breadth measures show the U.S. market to be healthy, with key indexes confirming the April 24th S&P 500 high. However, sector leadership is behaving in a way that’s consistent with an approaching market top.

Seasonality rests one rung above witchcraft in the pecking order of respected analytical techniques, yet our studies haven’t been able to refute its validity. We simply don’t understand why calendar phenomena that have persisted for decades should still be around.

Emerging Market stocks are probably the cheapest equity subgroup in the world today, trading at 13.0x our 5-Year Normalized EPS estimate—much lower than that of foreign Developed Markets (17.6x) and the S&P 500 (21.3x). But, EM stocks have languished near these valuation levels for almost three years.

At a time when social media stocks are the rage, stodgy “Old Tech” has quietly tacked on a 20% gain in the 13 months since the social media peak, while the NASDAQ Internet Index is still a bit below its March 2014 high. Yet, “Old Tech” P/CF remains below the level of 1995.