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During a tumultuous Q3, High Quality stocks proved to be resilient, losing only 2.0% compared to Low Quality stocks’ 7.5% loss in Q3. Low Quality stocks’ prior momentum seems to have broken down, especially in September when they slid by 7.1% for the month.

In the August book we published an article about the Indian equity market and proposed that investing in India is now more of a macro bet. The honeymoon—during which time Indian stocks were bid up from high hopes that the new government would reinvigorate the economy—is over.

Latest MTI calculation deteriorated to Negative (based on data for the week ended October 3rd). We expect further significant losses in the stock market near term and have cut net equity exposure in Core and Global asset allocation portfolios to 40%.

The Attractive range of the Group Selection (GS) Scores outperformed the Unattractive range in the volatile September market.

Highlighted Groups, Consumer Finance, Technology Distributors, Beverages.

Share repurchase activity among U.S. corporations is garnering a lot of negative attention as aggregate dollars spent on share buybacks are nearing the all-time highs last seen leading up to the financial crisis. We take a closer look at the recent activity to see if we are in for a repeat.

Up/Down Earnings: Highest Third Month Reading Since Q1 2012

The recent sudden strength in the dollar is mostly attributable to the divergent central bank policies. This supports a bullish dollar outlook over the medium term.

In September, the Russell 2000 index lost 6% and is down 4.4% YTD. Large Caps widened their YTD performance lead (S&P 500 +8.3%). Small Cap Premium slides to 15%.

Growth Stocks Better In Rough September

General patterns are a weaker dollar, rising stocks and range-bound bond yields.

The hawkish Fed and various geopolitical risks weigh on market sentiment, so caution is highly recommended.

Size produced the biggest differential, followed by Profitability, Quality, and Momentum factors.

U.S. Quality Corporate Bonds & Munis Rated Favorable; High Yield Bonds Rated Neutral.

September was very unkind to smaller firms.

The Major Trend Index weakened to 0.97 in the week ended September 26th, down from 1.01 in the prior week and the lowest reading since November 2011. The stock market remains in a high-risk zone, and we recommend investors take advantage of market strength to trim stock holdings. The Core and Global Funds now target net equity exposure of 45%, down from 55% entering this week.

Both domestic equity mutual funds and ETFs experienced strong net cash outflows for the week, while money market funds scooped up net cash inflows amounting to nearly $20 billion.

Domestic and foreign-focus equity mutual funds experienced net cash outflows for the week, while domestic equity ETFs and bond mutual funds captured positive cash flows.

The Major Trend Index fell 0.01 to 1.01 for the week ending September 19th, remaining within its neutral band (0.95-1.05) for the eighth consecutive week. This work continues to highlight an elevated risk level for stocks in the near term, and we are maintaining a reduced net equity exposure level of 55% in both the Core and Global Funds.

After slightly negative net flow last week, domestic equity ETFs' cash flow was strong this week with large caps leading the way.