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Read this week's Major Trend. 

With the halfway point of 2023 two weeks away, the S&P 500 has broken out to a 12-month high. The index has accomplished that feat 32 times during the month of June—or exactly one-third of all cases measured back to 1928.

The Core Strategy was down 0.7% in May.  Long equities were lower for the month (see description below), along with the fixed income and alternatives holdings. 

Read this week's Major Trend. 

We think the stock market is skating on pre-recessionary thin ice, an endeavor that, admittedly, can be both irresistible and (temporarily) profitable.

Question: Some tactical managers provide long-term forecasts for stock market total returns (7-10 years or longer). Do you publish such estimates?

Speculative spirits are back, and the index that’s suddenly close to its 2021 high is the one we viewed as the epicenter of the mania—the NY FANG+^® Index!

Years preceding presidential elections are more likely than others to feature stock-price action that is favorably disconnected from the fundamentals. Since 1926, the average S&P 500 gain in a pre-election year is +14.2%—about double the next-best year of the cycle.

Future economists learning of zero interest rates and Fed balance-sheet expansion during the 2021 inflation surge may wonder if policymakers were “on” something. Jay Powell is clearly “onto” something with his focus on a measure that few are familiar with: the Near-Term Forward Spread (NTFS).

“Real” stock-market wealth has declined considerably since late 2021 without yet delivering a knockout blow. But if the other key evidence detailed throughout this section is on the mark, that wallop is lurking in the very near future. 

Developments over the last four months leave us even more skeptical that the November yield-curve inversion will join 1966 as a “false positive.” The number one reason being the subsequent shift in the yield curve itself.

Is the stock market disconnected from a souring economy? It might seem that way, and the topic dominated the discussion at the recent Market Technicians Association annual symposium.

While we aren’t clamoring to add long-term Treasuries in tactical accounts, we believe that the past 18-months’ action has left them more attractive versus stocks than during most of the last 15 years. However, compared to gold, the S&P 500 still trails on a total return basis measured back to Y2K.

For more than a year, we’ve characterized the U.S. economy and policymakers’ decisions as increasingly late-cycle in nature, but that probably doesn’t do justice to the U-turn in the investment backdrop.

The NY FANG+® Index is up 68% YTD and +21% in the last month, with the Equal-Weighted S&P 500 up less than 2% YTD. Yet a measure of internal market disparity has 2023 barely cracking the top-ten of “incongruent” market years—meaning it can get worse before it gets better.

The top-five firms (AAPL, MSFT, AMZN, GOOG, NVDA) ended May comprising 24.2% of the S&P 500. This level of concentration eclipses August 2020’s pandemic high of 23.9%, and is the highest we have on record going back to 1990.

In the last three months, our Royal Blue Growth segment has outperformed Royal Blue Value by 14%, and all of our Value subsets ended May with YTD losses.

We’re seeing some very choppy action in our Ratio of Ratios but feel confident in its trend and message. The narrowing in this month’s Small-Cap discount can be attributed to the sharp decline in our Large-Cap median P/E multiple, as the equal-weighted S&P 500 lost 4% in May.

Our latest Up/Down ratio is 1.07. As we’ve mentioned in the past, the four previous periods in which the ratio dropped this low were all accompanied by recessions. However, the runways of poor figures  leading to prior recessions has never been as long as the current one.