Latest Research

Last time we updated this work, we were surprised by how much High Quality stocks had outperformed. In Q4 2014, High Quality stocks were up 9.6%, while Low Quality stocks had edged up only marginally (+0.3%).

How will today’s bull market be viewed through the eventual clarity and objectivity of hindsight? We’ve pulled together several still frames that we think best capture the essence of this historic run.

The first month of Q1 earnings for 2015 registered an Up/Down Ratio of 1.63. After three consecutive above average quarters, the ratio did a swan-dive deep into below average territory.

AdvantHedge trails S&P 500 inverse YTD; largest sector weights are Info Tech, Industrials, Energy

Select Industries purchased Drug Retail, Reinsurance; Global Industries added to Homebuilding, Electronic Equipment

Major Trend Index strengthened in April; net equity exposure increased to 61%

After residing in the 15-20% neighborhood for the past two years, the Small Cap premium may be finding a new home in the 5-10% range. Weaker earnings growth, and the outperformance of Large Caps over the last 18 months, are pushing the two P/E measurements closer to parity.

New S&P 500 bull market high on April 24^th confirmed by all manner of traditionally leading indicants.

The S&P 500 gained 0.9% (price only) in April. Based on the 1957-to-date valuation metrics presented below, downside to its historical average widened by about 1% from last month’s –18% reading.

Value stocks, recent underachievers, regained some lost ground in April. Large Cap Value was the month’s big winner—helped in large part by rallying energy firms. Large Cap Growth still leads YTD by more than 5%.

Gainers outnumbered losers by more than 2 to 1 for the largest 25 firms, while the overall market turned in uninspired results. Still, Q2 is off to a positive start for the S&P 500 as we look for the 10th consecutive quarter of gains for the index.

The common driver behind the sharp reversal of many recent asset class trends is the unwinding of the ECB QE trade.

Favor credits within fixed income in the near term but beware of volatility ahead

Municipals reduced to “Neutral.” Near term risk of higher interest rates stemming from European side is too hard to ignore.

The Major Trend Index jumped 0.07 to a 13-month high of 1.20 in the week ended April 24th, suggesting that last Friday’s new cyclical bull market high in the S&P 500 should be improved upon in coming months (despite our ongoing valuation concerns). Our tactical strategies remain positioned with net equity exposure of 58%.

The Major Trend Index dropped 0.02 to a still-bullish 1.13 last week, with losses in the Supply/Demand and Momentum work edging out modest gains in the Economic and Attitudinal categories. Net equity exposure in the Core and Global Funds remains unchanged at 58% following last week’s 3% increase, and the path of least resistance in the immediate term remains up.

The Major Trend Index rose 0.06 last week to a 10-month high of 1.15, led by a 95-point jump in the Momentum/Breadth/Divergence category. The improvement in the MTI and supporting analyses prompted us to cover a small (3%) short position in the SPDR S&P 500 ETF Trust, bringing net equity exposure in both the Core and Global Funds up to 58% from 55% a week ago.

Most of the factor trends that were in place at the end of 2014 have continued in 2015 thus far.

Health Care Distributors, Movies and Entertainment, and Cable & Satellite.

Despite this sector’s extended outperformance, we think this trend may persist in the near term as Discretionary industry groups look increasingly attractive within our group work. Keeping an eye on the Fed Funds rate is key, however.