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Following a great year for trend-following, capitalizing on key reversals in sector performance will be important in winning the 2014 performance derby.

Earnings growth over the next few years will—in the  best case—be forced down to the rate of top-line growth (nominal GDP).

This year should be a solid but unspectacular one for the U.S. economy, with real GDP growth of about +2.5%. We expect the Consumer Price Index to rise just 1.5%. Unemployment should continue to fall.

Gains will likely be modest, and secondary stocks could finish the year flat-to-down. The year will likely be marred by a moderate to severe mid-year correction, and Small Caps could easily suffer a 20% hit during that swoon.

It’s time to update our time cycle composites, and what they say for equities in the U.S., U.K., Germany and Japan and long-term interest rates and credit spreads in the U.S.

The thin liquidity likely magnified the move in both rates and credit spreads, but we continue seeing a friendly macro environment that supports high quality credits.

We were surprised to see that all differentials ten years and longer are still below their respective 1926-to-date medians, indicating they still have the potential to keep moving towards historical median levels. We expect stocks to outperform bonds going forward.

The reversal in fund flow trends that began mid-way through 2013 was solidified this week as the year came to end. Domestic equity mutual fund net cash flows ended the year in positive territory for the first time in 8 years at an estimated $16.7 billion. Conversely, bond mutual funds recorded their largest nominal annual net cash outflow ever at an estimated $87.9 billion.

The Major Trend Index jumped 0.04 to 1.14 in the final weekly calculation for 2013. While we don’t have a high conviction view for 2014, we enter the year with both the Core and Global Funds fairly aggressively postured with net equity exposure at 64%. 

Net cash inflows resumed for domestic equity mutual funds, and YTD net flows are likely to hold in positive territory for the first time in eight years. Conversely, bond mutual funds are looking to lock in the largest nominal annual net cash outflow ever recorded.

The Major Trend Index rose 0.01 to 1.10 in the week ended December 20th. This work remains bullish, but by a narrower margin than for most of 2013. We continue maintaining above-average exposure to equities, with the Core Fund now at a net exposure level of 64% and the Global Fund at 65%. 

Net cash outflows from bond mutual funds are not letting up, with this week's estimated net outflow at $8.8 billion. Domestic equity mutual funds net cash outflows are an estimated net $11.5 billion, but foreign-focused mutual funds have total net cash inflows of $133.3 billion YTD.

The Major Trend Index fell 0.03 to 1.09 in the week ended December 13th. The reading remains bullish, but is now just 0.04 above the 0.95-1.05 neutral zone. We continue targeting net equity exposure of 63% in the Core and Global Funds, but we are now on a higher level of alert. 

Outflows From Domestic Equity & Bond Funds Continue; Foreign-Focus Funds Still See Inflows.

The Major Trend Index was down 0.03 to a reading of 1.12 for the week ended December 6th. Both the Core and Global Funds continue targeting net equity exposure of 63%.

These stocks have been beaten down extensively over the past four years, but they finally appear to be on the road to recovery.

Among the few things untouched by the Obamacare rollout are the rising relative strength patterns of most health care stocks.