While we’ve emphasized several negative developments within the MTI’s Economic composite in recent months, not all of the evidence leans bearish. Outside of the oil patch, commodities have struggled to make a clear breakout, possibly reflecting the short-term bounce in the dollar.

While we’ve always emphasized the importance of the “weight of the evidence” over the individual MTI factor categories, it’s worth highlighting some key differences between the 2018 correction (which saw a loss in the S&P 500 of 10.2% at the February 8th closing low) and the 2015-2016 S&P 500 correction of 14.2%.

We’ve chronicled the ever-expanding gap between commodity prices and commodity-oriented equities.  Don’t expect a rebound in one based on the strength of the other. There’s no clear historical tendency for the weaker asset to catch up.

Yields on 10-year Treasuries are up 10 bps since stocks peaked in January, a clear break from the behavior of prior corrections. The last four stock declines of 10%+ were self-medicating—having been accompanied by bond yield declines of 50 to 150 basis points.

Isn’t a trade war more bark than bite? We think a full-blown trade war may be eventually negotiated away but the process is not necessarily painless to investors.

The Consumer Discretionary index has also managed to outperform the S&P 500 by about 100 bps since the market’s January 26th peak, and in late March it was just a hair away from surpassing its previous relative strength performance high recorded in late 2015.

After performing amazingly well in the record-setting bull market run since 2009, defensive equities are once again drawing attention for their traditional role as hedges against a continuation of recent market declines.

Volatile markets in 2018 have lent to relatively subdued mutual fund (MF) and ETF inflows.

The Supply/Demand work plummeted last week with three unrelated “smart money” measures all showing an institutional urgency to sell into the market weakness. Such behavior is atypical of this generally “countertrend” crowd, and a decisively bearish sign.

Our Group Selection (GS) Scores ranked Health Care as one of the top two sectors for a majority of 2011-2015; sector relative strength soared over that period.

We’ve repeatedly shown how well-telegraphed the bull market highs of 1990, 2000, and 2007 were from the perspective of breadth and leadership. Surprisingly, though, the historic high of August 1987 was not so well-anticipated by the eight market bellwethers to which we’ve lately referred.

The setback from the January 26th market peak represents the ninth correction of 7% or more since 2009, the most ever recorded during a single cyclical bull market.

This months-long research effort culminates with this commentary as we lay out our thoughts on factor rotation and introduce The Leuthold Group’s recently launched Factor Tilt strategy.

A potential trade war (not quite there yet) is not good for the dollar as it will inevitably invite retaliation and sour sentiment toward dollar assets.

The U.S. 10-year ended the month 15 bps higher but non-U.S. bonds fared much better with bond yields in Europe and Japan 4-5 bps lower.

Subjectively, we sense that investor sentiment has rebounded (too?) rapidly following the stock market’s air pocket earlier this month. Statistically, though, we’ve found that many of our sentiment measures perform better when the observations are smoothed using various moving average lengths.

Things were bigger when you were a kid. Like that enormous sweatshirt your aunt gave you for your birthday or that hand-me-down ten-speed bike with the cross bar taller than your shoulders.

Historically, leadership and breadth accompanying an upside market move is far more predictive than the pure momentum of the move. But when intermediate-term momentum is not just strong but exceptional (as it was until just recently), there has usually been even more upside to follow.

While the Materials sector overall still isn’t looking stellar based on our work, we think with the Metals theme heating up, it’s a trend worth watching. 

Our Up/Down Ratio soared to an impressive reading of 2.65—nine years into the current recovery. This is the highest “one-month” reading we’ve seen since 1993.