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We remain reluctant stock market bulls, with our disciplines supporting net equity exposure (targeting 55%) that “feels” too high based purely on instinct. We think our stay in the overcrowded bull camp will be short-lived.

While our disciplines continue to turn up enough bullish evidence to keep us cautiously positive toward stocks, we are seeing troubling signs by cyclicals (especially the Transports) and junk bonds.

Poor performance in 2014 by two typical victims of Fed tightening—Consumer Discretionary and Small Caps—corroborated our argument that “tapering” is tightening.

Oil’s 60% decline in the last nine months has been the headline-grabber, but the remaining components of the Continuous Commodity Index (CCI) deserve some love, too.

While there’s understandable obsession over the likely level of inflation (especially with the year-over-year CPI dipping below zero in the past two months), equity managers with no interest or skill in inflation forecasting might be better served by monitoring the character of inflation—i.e., whether it was led by changes in consumer or producer prices.

With negative nominal yields throughout Europe dominating the fixed income headlines, a very different development in the United States has failed to attract any attention: the emergence of positive real short-term interest rates in the past two months.

Consumer Confidence shot to new cycle highs in March, closing within 6-7 points of the peak made shortly before the Great Recession.

Will Rogers said, “It isn’t what we don’t know that gives us trouble, but what we know that ain’t so.”

Our long term view towards China is positive (especially relative to other large EM countries), but short term, we see signs of the A-shares segment overheating and caution against near term corrections.

From a price action perspective, the drop below the 50-day moving average and the failed higher-high, higher-low pattern are not supportive of an imminent up-turn in interest rates.

A look at profitability trends at the broad sector level; only Utilities and Telecom Services are experiencing levels below their long-term medians.

We recommend staying cautious and exercising patience in the near term.

The low spread cushion/low yield level combination remains. Issuance tapered a bit while net inflows increased.

The final month of Q4 earnings reports registered an Up/Down Ratio of 1.48. If you recall, we entered the final month of earnings with a well above average, two-month ratio of 1.67. On a stand alone basis, March had a very weak ratio of 1.06.

Small Cap Premium Bounces Back To 10%

Growth Continues Run In Q1

S&P 500: Home On The Range

The Major Trend Index fluctuated within a tight band during the last five weeks and closed the week of April 3rd at a mildly positive 1.09, down from 1.11 at the end of February.

The S&P 500 lost 1.7% (price only) in March. Based on the 1957-to-date valuation metrics presented below, downside to its historical average decreased by about 1% from last month’s reading of –19%.