In addition to impressive factor readings, we like the fundamental trends in this space.

Small Cap Premium Continues Upward To 23%. Large Caps Lead On The Downside In January

The emerging markets are in a much better financial position to weather any financial turmoil than they have been in the past.

EM valuations look cheap in a stock market world that otherwise doesn’t. But even their “cheapness” bothers us.

While the current market setback of –5.8% doesn’t qualify as an intermediate correction, it’s close enough to the threshold to warrant a quick review of what such a correction—and the ensuing recovery—might look like.

January’s new breadth highs suggest new bull market price highs are likely some time in the next several months… but they can’t rule out a painful February.

We are turning defensive within fixed income and recommend moving up the quality scale.

Is a new secular bull market underway? New highs in essentially all U.S. undermine the argument from the shrinking pool of secular bears. But new converts to the bull thesis should be concerned about the valuation levels already reached.

It's almost time for baseball!

Both equity and bond categories set all-time nominal net cash flow records.

All five factor categories did well, and the best performing Attractive industries came from six different sectors and ranged from traditionally defensive to more cyclical groups.

Small Cap Premium Continues Upward To 21%. The red-hot equity market of 2013 was especially good for Small Caps with a +38.8% total return.

What worked, what didn’t; what you need to consider for investing in Emerging Markets this year.

The investment leadership of a given year has historically had better-than-even odds of outperforming in the following year at both the asset class and equity sector levels.

The January Small Cap bounce effect ain’t what it used to be, but extrapolating the month’s market action for the next eleven months is a “less bad” idea than any other time of the year.

Gains will likely be modest, and secondary stocks could finish the year flat-to-down. The year will likely be marred by a moderate to severe mid-year correction, and Small Caps could easily suffer a 20% hit during that swoon.

It’s time to update our time cycle composites, and what they say for equities in the U.S., U.K., Germany and Japan and long-term interest rates and credit spreads in the U.S.

We were surprised to see that all differentials ten years and longer are still below their respective 1926-to-date medians, indicating they still have the potential to keep moving towards historical median levels. We expect stocks to outperform bonds going forward.

Inflation measures are going lower still, and the lack of inflation is one of the biggest hurdles for the Fed to start tapering. We maintain our view that inflation will be a non-factor for the next six months, but it will increase moderately in the following six months. We expect weakening inflation on the producers’ level too. Disinflation is consistent across various measures.