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In a market that is less than ideal for an all-cap strategy, Select Industries has had success by investing in several key themes: mega-cap growth, housing/construction, and IT supply-chain beneficiaries. 

The Magnificent Seven was trimmed to the Fab Four in Q1 as NVDA (+82%), META (+37%), AMZN (+19%), and MSFT (+12%) beat the overall S&P 500 and contributed just under half of the index’s total return for the quarter. We’ll score GOOGL a bogey (+8%), with AAPL (-11%) and TSLA (-29%) really making a mess of it. Heck, TSLA was the worst performing stock in the entire S&P 500 in Q1—nothing magnificent about that!

Mega Cap Growth’s excellent start to the year hit a snag in March: The Royal Blue Growth Tier was the only style box in the red. Outside of Small Caps, Growth and Value flavors returned similar results in Q1 (+8% to +10%).

Our Ratio of Ratios is unchanged from last month, as both Large- and Small-Cap indices posted similar results in March. If earnings remain the same, Large and Small Caps, alike, would need to rise another 10% to match the contemporary, absolute P/E peak set at the end of 2021.

The Up/Down ratio is 1.14. Looking at the history of data, such a stretch of well-below-average readings should have either spiked higher on an economic upswing by now, or plunged even lower with a recession. The soft landing of 2015-16 posted four quarters of figures below 1.20—the current run has doubled that streak.

The U.S. economy is likely to benefit from all the election-year policy measures yet to come.

To gauge how much faith we should have in this “virtuous” cycle, we examine the macro context in terms of the business cycle, the Yen, interest rates, and inflation. Ultimately, inflation holds the key to bond yields, as the main difference between pre- and post-1990 rate hikes boils down to inflation—which is also the key determinant of how far the BoJ can go in this tightening cycle.

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This month’s Leuthold Refresh is a quarterly update on our factor regime analysis. Factors, or investment styles, have historically performed quite differently under various economic and market conditions, and we’ve mapped these relationships to identify the factors best positioned for the environment at this time.

Well-respected analysts have been espousing different views on the Staples sector’s overall valuation. Some argue Staples is rather richly priced, while others believe it is a bargain in the making. Disagreement creates opportunities, and we believe a closer look at Staples is in order.

The S&P 500 recorded its fifth consecutive monthly gain in March (+3.1%). For the first quarter of 2024, the index returned +10.2%, not terribly far from the +11.2% seen in Q4 of 2023.

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Phil Segner digs into the earnings data on the latest Leuthold Podcast.

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ETFs that focus on a single sector, style, or theme enable investors to make tactical calls that reflect their outlook and risk tolerance, resetting their risk/return profile to benefit from prevailing economic and market conditions. As fate would have it, the explosion of tactical, thematic funds that began 15 years ago coincided with a drought in market cycles.  Following the Global Financial Crisis, the S&P 500 only experienced one moderate drawdown in the next nine years, meaning that opportunities to judge these new thematic ETFs during market declines were in short supply.  This dearth of real-world corroboration has been remedied in recent years as the market experienced three major declines in the span of 49 months, and this expanded sample size serves as the basis for our current study evaluating defensive ETFs in down markets.

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The Major Trend Index continues to sit at High Neutral, with strong market action continuing to override concerns among the other indicators (Valuations, Economy, Sentiment).  With the MTI on the positive side of Neutral and market action increasing the value of long positions, current equity exposure now sits at 56%.

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Select Industries looks much different than it did one year ago, with exposure to growth-oriented groups increasing, while commodity- and defensive holdings have been declining. This shift benefited performance throughout the last twelve months. 

Factor performance was decidedly risk-on in February. Through month end, high-momentum names have outperformed the universe by 6.7%—we have to go back to the Tech Bubble to find a year when momentum had a stronger start.