With all the excitement over the Fed’s shift in rhetoric and the excellent subsequent market action, there’s a danger of losing sight of the broader cyclical backdrop for U.S. stocks. Remember, the economy is still operating beyond government estimates of its full-employment potential, and it’s not as if the Fed has actually eased policy—as it did successfully at a similar late-cycle juncture in the fall of 1998 and (ultimately unsuccessfully) in the summer of 2007.

The MTI’s stubbornness during the current rally confirms our overall sense that cyclical risks facing U.S. equities remain high. That said, we have great respect for the action of the market itself—enough so that we’ve allowed net equity exposure in our tactical funds to drift upward.

Momentum is a smart beta factor that gives investors excellent upside participation in rising markets. Most other smart beta factors are defensive plays, so Momentum is the place to be in strong upward moves. Momentum filled that role admirably in recent years, rising 56% from 2016 to the September top, compared to an average of +26% for the other major factors.

Momentum category gain was driven by strength in breadth measures, selected trend models, and most of the Chart Scores.

Currently, the collective intelligence of Wall Street is predicting 6% S&P 500 EPS growth in 2019. It’s also the 61-year average annual growth rate for the index, so how wrong could it be?

The latest CPI numbers are largely in line with market expectations. The Fed pause and other central bank easing moves are positive for risk markets. Watch cyclicals/defensive relative performance and ISM for near term direction.

The Attitudinal category, which tends to vary inversely with the Momentum work, turned negative for the first time since mid-October, suggesting growing investor conviction that the rally will continue.

We’ve written at length about a bear market’s tendency to catalyze major leadership changes—across sectors, styles, and even geographies.

To recap our allocation moves over the last year: We established an initial equity hedge in tactical accounts very close to the January 2018 highs.

There are enough parallels between the 1998 and 2018 market declines that we decided to flesh out the comparison a bit more.

The Fed’s “Christmas capitulation” seems to get most of the credit for the stock market rebound, but we’re not exactly sure how, or even if, the Fed capitulated at all.

The Social/Mobile/Cloud theme (SMC) has dominated the stock market in recent years, eventually reaching a frenzied peak in the summer of 2018.

We look at our domestic Airlines’ GS Score and examine the historical relationship between oil prices and Airline stocks. Additionally, we explore several other data sets to determine where the industry’s supply/demand picture stands heading into 2019.

A significant policy move by China’s People’s Bank of China (PBoC) has gone largely unnoticed.

From a Momentum perspective, chart work has improved across the board but much of the longer-term trend work has remained in neutral or bear territory. These measures are, by definition, late at turning points, and we strongly prefer that the “anticipatory” tools within the MTI drive most of the swings.

The passing of investment legend John Bogle has brought forth many well-deserved tributes to his professional accomplishments. He was a tireless champion of passive investing and the founder of The Vanguard Group which, as more than a few investors don’t realize, also manages almost $1 trillion in active funds.

The Attitudinal category remains solidly bullish, suggesting there are significant investor doubts surrounding the rally. The market has also absorbed the past few days’ earnings torpedoes fairly well, another sign that expectations are still subdued.

Donald Trump is thought to have been born with a silver spoon in his mouth, and the economic circumstances prevailing at his inauguration two years ago might have further perpetuated that view. The U.S. economy had already been in recovery mode for 7 1/2 years, and the bull market in U.S. stocks was about to celebrate its eighth birthday.

The fourth quarter selloff and subsequent rebound, as seen by Doug Ramsey (Chief Investment Officer) and Jim Paulsen (Chief Investment Strategist).

While growth rates in M1, M2, and MZM appear to have leveled off following their sharp declines over the prior 18 months, the annual rate of decline in the Adjusted Monetary Base (a good proxy for the Fed’s balance sheet) accelerated to almost 12% at year-end from just 3% six months earlier.