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Large Caps gained 5.1% (total return) in July, lagging Small Caps (+7.0%) and Mid Caps (+6.2%). YTD, Small Caps are now ahead of the other two subsets, and Large Caps are the laggards.

Small Caps are selling at a 15% valuation premium relative to Large Caps, using non-normalized trailing operating earnings. This is the same as last month’s reading. Using estimated 2013 operating earnings, Small Caps are selling at a higher valuation premium of 24% (25% last month).

Year-over-year EPS growth rate for companies with Q2 reports (with about 65% in) currently stands at +4.2%, while revenue growth has come in at a better than expected +2.6%.

Q2 relative to Q1 growth rates have improved for larger cap companies but deteriorated for the smaller firms.

The first month of Q2 reports looks better than feared with a reading of 1.59. This is below the average of 1.81, but given this earnings season’s low expectations, investors should breathe a sigh of relief.

The relative cheapness combined with the prospect of higher tax rates certainly makes us much more interested in Munis now. But we’ll exercise patience, waiting for the negative headlines to fade and interest rate volatility to subside before turning bullish on Munis.

Over the past few months we’ve seen the largest high yield bond fund outflow since 2000. We will exercise patience for now and wait for a better entry point.

Despite the exodus from all bond classes in the last few months, longer term demand for safe spreads is likely to remain strong and investment grade issuance has dropped significantly.

The RAI fell in July and stayed on a “High Risk” signal. We remain cautious and recommend higher quality within fixed income.

A closer look at the dollar’s two main counterparts, the euro and the yen, reveals a regime shift in both cases, but for different reasons.

If interest rates keep going higher from here, we would run the risk of derailing a still-fragile recovery. As long as the Fed tapering uncertainty exists, we expect higher volatility on the 10-year yield to persist in the mean time.

Our AdvantHedge Composite lost 5.9% in July, lagging the inverse performance of the S&P 500 (5.1%), but outpacing both the NASDAQ (6.6%) and the Russell 2000 (7.0%) as the market returned to “risk-on” mode.

Excellent scores in three of six model categories, plus it offers plenty of market cap and low beta relative to other Health Care groups. We think it will benefit from broad, long-term industry trends.

Attractive valuations, improving growth and technical strength are the key drivers. The group offers an opportunity to participate primarily in the overall growth of computing devices.

But Information Technology rises to the top of the Domestic model, while the trend of Financials domination in the Global model remains intact.

 Health Care Distributors and Electronic Manufacturing Services were both added to the portfolio this month.

Group Deactivations: Oil & Gas Refining & Marketing was deactivated.

Core, Global, and Asset Allocation Portfolio overviews.

The S&P 500 gained 4.9% (price only) in July. Based on the valuation metrics presented in the table below, the S&P 500 is 12% above its historical average. S&P Industrials (excludes Utilities and Financials) now have 21% downside to reach mean valuation.

There are some substantial deviations in sector performance depending on your constituents and weighting scheme while, simultaneously, betas are converging toward one another.