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The index’s trading range spanned only 120 points in April—or a bit less than 3% of the previous month’s close. The S&P 500 has a monthly trading range average of a little over 9% since the start of the pandemic and, to find a month calmer than April, you’d have to go all the way back to July 2019.

Large Caps—both Growth and Value—were the only winners in April. The S&P 500 has outperformed the Russell 2000 by nearly 12% in just the last two months.

Our Ratio of Ratios is kind of getting out of hand. The latest reading matches the March-2020 pandemic low. A recession—which only small caps seem to be priced for—will probably be needed to see a turning point in this relationship.

Our latest Up/Down ratio is 1.17. Given the optimistic tone of the earnings season and lower hurdles of 2022, that reading is disappointing. This wide-view vignette is telling us that few firms are growing their EPS.

During bear markets, speculative psychology can remain depressed long enough to have a self-fulfilling impact on the economy. In today’s experience, we expect investors’ economic fears will be “fulfilled” in coming months. In the short term, however, at least one measure of optimism has sprinted out ahead of the stock market itself.

For the first time since 1946-47, the super-bullish, six-month window beginning with the mid-term elections through the following April, failed to see a material upswing in Small Caps. 

It was September 2020 when we suggested that a new multi-year phase of Small-Cap-stock leadership had begun. Almost immediately, the Russell 2000 reversed a big chunk of the prior decade’s underperformance. Unfortunately, that was the extent of the run.

Despite the resilience in most risky assets, the recession probability has increased and the prospect of further credit tightening has only added to the downside risk.

In the wake of the 2020-21 mania, any dose of valuation sanity is obviously greeted with eye-rolls. We are going out of our way to present the numbers in the least-shocking way possible.

We know that historical analogs and averages can be overdone in market analysis, and our statistical approach (and maybe our longevity) makes us even more susceptible to looking for patterns that might not exist.

We have no special insights into the likely depth or duration of the banking crisis, but the impact on credit has already been severe. That might seal the fate of the economic expansion. It’s worth noting that in 2008, the recession seemed to have “caused” the credit crunch—not the other way around. 

An earlier-than-expected X-date means higher market volatility and increased chance of a temporary short-term deal. Typically, the debt ceiling drama is short-lived and there’s not much impact on most assets before or after a resolution. Overall, the possibility of an accident is now above average.

Volcker stormed to the scene to extinguish a blaze lit by others, while Powell battles a conflagration of his own making. Even if Powell executed a perfect, disinflationary soft landing, there may be something else in the cards: The magnitude of M2 shrinkage has resulted in the Marshallian K’s worst ever reading. 

The S&P 500 rally off last October’s low reached +16.9% at its peak on February 2nd. That’s well below the largest post-WWII bear-market rally of +24.2%

Growth and Tech have been the flagrant winners YTD, yet the SVB crisis triggered further bifurcation: Since SVB failed, it’s been important to own only “big” Growth and “big” Technology, amplifying the multiples of monster stocks, like MSFT and AAPL. Can a major market low occur when investors are herded in a handful of the most richly-priced public companies in history?

The Value/Growth dynamic seemed to indicate a return to the “lower rates are good for Growth stocks” regime. China reopening is still alive and well, despite a recent pause. The GSCI Industrial Metals/Gold ratio has broken below its recent range, which bodes ill for inflation expectations going forward.

We’re very skeptical that the rally from last October’s low represents the first leg of new bull market. But if it is—as many believe—then it has unquestionably inherited the worst set of genes we’ve ever observed in the species.

As an all-cap strategy, Select Industries is currently targeting larger market-cap themes via our “Big” groups from Info Tech, Communication Services, and Health Care.

The S&P 500 posted an encouraging +9.2% YTD, but below the surface that strong return was the result of a limited number of influences. There is narrowness in both thematic and return drivers; the fact that gains have not been broad-based is cause for concern about performance during the remainder of 2023.

A late-month rally drove the S&P 500 into positive territory for April—the 1% gain pushed it to its highest monthly close in a year.