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Net equity exposure in the Core strategy is currently 56% - above our typical 50% midpoint as the market has moved higher while the MTI was recently in High Neutral.

After accumulating and maintaining heavy exposure to Information Technology since early 2023, Select Industries trimmed the weight in the sector by selling Internet Services & Infrastructure. 

Risk appetite continues to be stronger within large caps compared to small caps, with AI themes more prevalent among the biggest names. Less volatile, more profitable firms are winning within small caps.

One of the few bright spots for the index in April was Google’s post-earnings jump. The firm held on to most of those gains and ended the month with an 8% advance. This outstanding relative performance catapulted the company back into the 4% Club for the third time in its history. This also marks the first time that four companies have simultaneously shoehorned their way into the 4% Club.

Three of the last four years have offered some very divergent returns between the Growth and Value style boxes across all market caps—a 30% spread hasn’t been uncommon. Just over one-third of the way into 2024, there has been little variance between the two styles.

It’s been a year since our Ratio of Ratios matched its pandemic-era maximum discount for Small Caps, at 36%. Since then, the relationship between the two multiples has gone decidedly nowhere, staying in the SC discount range of 22-28%.

The Up/Down ratio is 1.02. This survey of firms, both large and small, continues to tell us that YOY EPS growth isn’t (and hasn’t been) pervasive—despite an economy that, in the aggregate, has remained remarkably resilient.

The repricing of Fed cuts has largely run its course, removing one big negative from the market.

One casualty of the U.S. market’s hawkish turn is the Japanese Yen. It certainly grabbed its share of headlines, yet, when viewing the selloff in historical perspective, this year’s uptick looks entirely inconsequential. Additionally, when considering the Yen through the lens of other Asian currencies, its outsized weakness versus the dollar essentially disappears. Dollar strength is the real driver and it has pummeled Asian currencies across the board.

The MTI’s Technical category remains at a net reading of +3, and is the only bullish pillar supporting its Neutral stance. Most of the Technical strength reflects positive scores across our trend and momentum disciplines.

Can the stock market become so calm that it’s dangerous? The volatility of the S&P 500 Implied Volatility Index (VIX^®) can provide a clue.

Many pundits would contend that a stock-market bubble can’t exist (or even develop) with consumer pessimism as widespread as today. We are not so sure, but we currently don’t think U.S. Large Caps quite qualify as a mania, either, since the stock market was just rebuffed at three of the four valuation thresholds we use for making that determination. Bubble or not, if the market peaks out here, it will represent the third most-expensive top in the history of our valuation work.

Powell could be remembered as a Fed Chair who was apolitical to a fault, and there’s one last item that would cement his legacy of political independence: Jay could well preside over another election-year decline into recession (as in 2020). If so, he will have achieved it with a president from each major party. Powell would emerge as the ultimate non-partisan—and an effective enforcer of single-term presidencies.

The Federal Reserve’s ultimate inflation-battle success will be judged entirely on the performance of aggregate numbers, like Core and “Supercore” inflation, and the PCE Deflator. However, we think it’s unlikely that certain cyclical sectors, such as housing and autos, can recover in the absence of outright price cuts in the year ahead.

The U.S. manufacturing sector has been in a mild recession for more than one-year-and-a-half, with only a single reading in the ISM Manufacturing Index north of the 50 level since September 2022. And since June 2022, there were only two months in which the ISM New Orders Index poked above the 50 expansion/contraction threshold.

Now at the bull market’s one-and-a-half-year mark, it’s notable that every major stock index has trailed the average path for a new bull market at this point in a cycle. But, it’s unfair to liken today’s bull with past bulls, because it has a unique adverse trait that is apt to be life-shortening: It arose during an economic expansion—and likely in the latter stages, considering the unemployment rate was 3.5%.

Despite our reservations about the durability of the expansion, we have to respect what it has overcome: interest-rate hikes of 425 bps; a nearly 2-year runoff in the Fed’s balance sheet (QT); and a 9-month bear market that began before the expansion reached its 2-year milestone. Even consumer “expectations,” which track the market higher in the early phase of a bull market, never rebounded and are lower now than at the fall-2022 market low.

The stock market seems to relish the headlines it believes we’ll be reading three- to six-months from now. At the end of that window, of course, is the presidential election, and it’s impossible for us to see an outcome that doesn’t deepen the partisan chasm.

Read this week's Major Trend.

Despite a hostile setting for active management in Q1, six of nine style boxes in our ongoing analysis achieved active-fund win rates above 50% (60% on average bested their passive benchmark). The other three each scored just below 50% of active strategies beating passive. This is remarkable given the proven importance of market conditions in the active/passive performance derby.