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It was a rough back half of August for the S&P 500 as it shed 8% in the final two weeks, overpowering the gains captured earlier in the month. In all, the S&P 500 had a loss of 4.2% for August.

Read this week's MTI update...

Read this week's MTI update...

Estimates are continuing to shrink for 2022 and 2023.

See this week's MTI update...

The scene in our neighborhood in the last two summers has become one of relaxed and well-tanned professionals out in their yards overseeing home improvement and landscaping projects. No surprise: Not a single one has told us they’re less productive when working from home!

Read this week's Major Trend update. 

Old timers will recognize our title as a twist on Ronald Reagan’s clincher in the final 1980 presidential debate with Jimmy Carter.

We recalled Reagan’s line while preparing for today’s 40th anniversary of the great 1982 secular stock-market low. Investors in the S&P 500 have earned an annualized total return of +12.4% since that trough, about two percentage points above the long-term average.

Our recession indicators have continued to deteriorate. Given the stagflation backdrop, the Fed’s tightening cycle is very likely to end in a recession.

Read this week's Major Trend. 

High-beta stocks outdid everything else during July, after getting crushed during the first half of 2022. At the end of June, Momentum was more correlated with low beta than any other time in our history.

With equities rallying off bear market lows, factors also reversed during July. Except for Profitability, every factor category performed inversely to their year-to-date results. Momentum and Low Volatility were the biggest losers, while Growth was the biggest winner.

The six-week rally that started mid-June featured advances from AAPL (+25%), AMZN (+30%), and TSLA (+39%), which accounted for one-fourth of the S&P 500’s gain. Despite the recent preference for Value, a spike in interest rates, and the bear market, the index’s concentration in the top-five firms is still near it’s all-time high set in August 2020.

Growth stocks staged a modest rebound in July but still trail Value YTD, most notably in our Royal Blue segments. RB Value (-3.1%); RB Growth (-24.6%).

At the beginning of the year, we liked the chances for the “Donut Portfolio” to break its 10-year losing streak against the S&P 500. As a refresher, the Donut holds six of seven key assets in equal weights. The S&P 500 is excluded—a decision probably only suitable for allocators who are self-employed. 

Many technicians contend that the rebound off June’s lows triggered a bear-market-killing “breadth thrust.” Several gauges we monitor to capture this phenomenon contradict that claim. None has reached a threshold that is extreme enough to qualify as a thrust.

Our Ratio of Ratio’s contemporary peak (Feb. 2021) of an 8% Small-Cap discount unsurprisingly coincided with a relative strength top in the Russell 2000. Over the ensuing 17 months, the Russell 2000 posted a 13% decline compared to an 11% advance for the S&P 500.

The theory of “contrary opinion” is important to market analysis, but so is an understanding of its limitations. When investor-sentiment surveys dipped sharply in late January, we warned that the declines (which are usually signals to “buy”) might instead mark the beginning of an important trend change. 

With the first month of Q2-22 earnings in the books, our Up/Down ratio is 1.09. This figure lands in the fifth percentile of observations for our 39-year history and nearly matches the “one-month” reading of  Q1.

We won’t dispute that investors were not genuinely frightened at the June market lows, or that fears have evaporated following a 13% rally in the S&P 500. The distress is understandable: For 26 traumatizing days in 2022, our S&P 500 Normalized P/E multiple traded below its 1957-to-date top decile!