In May 2015, we warned about rich valuations for small cap Biotech stocks and looked at various ways to evaluate those companies, as the majority have no approved drugs on the market, thus no revenue; therefore, valuing these companies using the conventional methodology is problematic.

Several consumer confidence gauges plunged in the wake of the Q4 market decline (as expected), and then rebounded in a lagged response to the stock market recovery (again, as expected). But March saw the largest one-month drop in consumers’ assessment of their “Present Situation” since 2008.

Performance has been robust for this group, rising on a relative strength basis since the end of 2017. Its diverse mix of constituents equates to a group that, overall, is middle-of-road in terms of beta and volatility relative to other industries. These dynamics have contributed to its solid relative returns across diverging market environments of late.

Quantitative investing has taken the industry by storm over the last decade, and smart beta ETFs are pulling in billions of dollars as investors and advisors gravitate to this portfolio management technique.

As of the end of February, net cash flow into equity fund categories was subdued compared to that logged for the first two months of 2018.

The Intrinsic Value category remains a drag on the MTI but is well below cycle extremes seen in January 2018 and again in September. The Momentum category, however, continues to nudge the MTI higher for the third consecutive week.

The “Expectations” component of the Consumer Confidence survey has been wobbly in the last few months, but the latest report, released on Tuesday, showed the first meaningful hit to consumers’ “Present Situation” since the stock market first began to struggle 14 months ago (Chart 1).

One of our long-term momentum models improved last week, while the Dow Bond Oscillator—as good of a mechanical monetary indicator as we’ve encountered—pushed further into positive territory.

We thought Jerome Powell’s “Christmas Capitulation” would be tough to beat, but he accomplished that two days ago with what could be called his “Spring Surrender.” That, in turn, has rekindled hopes of a stock market melt-up along the lines of 1998-99, which, as old-timers will remember, followed a late-cycle correction that was nearly identical to the one seen last year.

Within the Economic work, the big development was a bullish flip in our Dow Bond Oscillator (DBO), which crossed above the zero threshold by the thinnest of margins. Subjectively, however, we are troubled that government yields across the maturity spectrum have been holding near recent lows in the face of equities’ powerful rally.

U.S. equity valuations remain considerably higher than those of any major foreign market, but there’s no denying they’ve improved from the cyclical peak made in January 2018. That’s true across the capitalization spectrum, and on the basis of both normalized and non-normalized fundamentals.

The latest CPI numbers were slight misses and at the bottom end of their contemporary ranges. The recent rally of risk assets might be the only tail wind we can find for future inflation. The stark difference in durable and non-durable goods inflation is an excellent study in globalization.

Valuations seem to ignore indications that an earnings recession has begun, let alone the possibility that S&P 500 GAAP Earnings Per Share for 2018 could represent not just a short-term peak, but perhaps a cyclical peak as well.

Our earnings waterfall analysis for the fourth quarter tells a story consistent with the entirety of 2018: earnings growth was fantastic, boosted by the twin drivers of strong sales growth and a lower corporate tax rate. Chart 1 spotlights the quarter’s tally, which produced a healthy sales growth number despite some economic weakening.

We’ve been either light on Emerging Market stocks or out of them altogether since early 2011, but have lately been watching for an opportune time to re-enter.

While it’s too early to let the ink dry on the accompanying table and chart, we’ve decided to add last year’s decline for comparative purposes.

We received two media calls in December hoping we would comment for upcoming special features about the tenth anniversary of the bull market. We rolled our eyes.

Since the earliest days of security analysis—when the main question was which railroad stock to buy—Price to Book has been a cornerstone of the valuation process.

We explore these factors’ behaviors from the stance of our proprietary equity group universe and present industry ideas—across sectors—that fit each of these investment viewpoints. The intent is to offer new investment ideas from a different analysis perspective.

The biggest near-term wild card is the infinitely confusing and hopelessly unpredictable Brexit.