Using “Analyst Score” to measure sentiment and our Group Selection (GS) Scores, we present what appear to be the most quantitatively Attractive, yet disliked equity groups.

Performance of this thematic group has been strong but the domestic Big Four networks are facing increasing competition overseas. However, there is still a much better growth profile compared to many other industries.

Inflation and inflation expectations are key inputs to central banks’ policy decision process. Divergent policies have very different impacts on inflation.

Lower energy prices will benefit the paper industry as it is among the most energy intensive of Materials groups. Yet, global implications may produce a headwind, offsetting the benefit of lower oil costs.

The bull’s 72-month lifespan now rates as the fourth-longest among all 23 DJIA bull markets since 1900, and the cumulative price gain of +179% ranks sixth.

Our longer-term bear market forecast and a temporarily positive stock market stance aren’t mutually exclusive.

Transports now find themselves in a three-month RS downtrend; it’s too early to tell if this is an important message. Leading up to 14 of the last 16 bull market tops, Transports underperformed for a six to 12-month period prior to the final bull market high.

Can a deflationary outlook coincide with a bullish stance on equity markets? The short answer: YES. Periods of more commonly experienced mild deflation have actually coincided with above average stock returns, especially when deflation occurs outside of a recession.

The ease with which the 10-year yield broke the strong 185 bps barrier was simply too hard to ignore. This tells us interest rates will likely go lower before going higher. The current active range is 140-185.

Even after several years of relative outperformance, Airlines currently ranks fourth highest among the 115 groups we track. Our confidence is supported by the compelling fundamental story. Management has been making disciplined decisions in the face of rising demand and falling fuel prices.

We rely on past experiences in Japan, the U.K., and the U.S. to give us clues about the future path of the EU QE.

It’s more complicated than one would think. Besides input costs, one must consider the impact on revenues, and whether various pricing differentials come into play.

Has the recent collapse in crude oil prices presented us with a good opportunity for an outright commodity investment? No. Energy stocks aren’t on our radar screen either.

In a cyclical bull market as long and strong as the current one, it’s certainly possible the topping process will be proportionally lengthy and deceptive.

We expect a “garden variety” cyclical bear market to break out this year or early next year and present a chart demonstrating the potential path of decline. In the context of the last two decades’ market action, a decline of this variety does not “look” all that significant.

We expect much higher volatility in interest rates this year as the market grapples with the prospect and timing of the Fed’s first rate hike.  Our base case is for the Fed to raise rates in the third quarter. There are various reasons for the Fed to be patient. Inflation will be the biggest one.  The threat of oil-related risk contagion is certainly real. We are concerned that equities have not fully priced in this threat.  

We are pleased with our results for 2014, as we averaged about 58% net equity exposure throughout the year and were within throwing distance of the all-equity benchmarks. Our performance run was substantially smoother, though, and earned good risk adjusted returns. We made no substantial changes to our allocation in December.

We are again impressed by the pattern’s predictive ability as most equity markets tracked their respective patterns quite well in 2014. Another banner year seems to be in store for the S&P 500. The exceptionally favorable pre-election year is the main reason, but we cannot be too complacent.

Weight of the evidence suggests the bull market is in a broad topping process, likely begun in late-July. The duration, however, may be proportionate to the tremendous five-plus year upswing that preceded it.

Last year was a solid one for the Group Selection (GS) Score approach, with the Attractive list delivering a total return of +13.1%—more than 500 basis points above The Leuthold Group Universe average, which gained only +7.9%.