For more than two years we’ve discussed the supply-side risks to commodity producers stemming from capacity built during the manic “Third Act” of last decade’s Three Act Play in commodities. Commodity-oriented equities have indeed underperformed since 2011, but to date, most pundits have laid blame squarely on the demand side.

Today it seems taken for granted that the great housing meltdown of 2006-2010 was sufficient to purge the last decade’s excesses, and that housing can now be relied upon as one of the drivers of a slow but elongated U.S. economic expansion.

With July’s market surge producing new cyclical highs in virtually every important subgroup (other than Utilities), it’s difficult—if not dangerous—to question the U.S. stock market’s technical underpinnings.

Whether one considers the post-2008 upswing two bull markets or one ultimately matters only to those who (like us) enjoy cataloging such things. But labeling the 2011-2013 rally a new bull market would certainly explain some of the “immature” behavior exhibited by U.S. stocks in recent months.

IF one considers the 2011 decline a full-fledged bear market, then it follows the new bull market is only 22 months old. After all, we’re seeing some “immature” market behavior, and some atypical bear warnings.

The Major Trend Index has experienced a bout of instability since April, twice retreating to its Neutral zone before the bull market promptly overrode both signals.

The YTD surge of 19% in the S&P 500 should ensure a stronger second half economy, and the big five-point jump in the latest Purchasing Managers Survey (ISM) might be the first evidence of this.

As discussed last month, the Major Trend Index has experienced a bout of volatility in 2013 that is not uncommon for a late-stage cyclical bull market. Since April, the MTI has twice dipped to the Neutral zone, but both moves were ultimately aborted as the stock market moved to new cyclical highs.

Consumer Discretionary’s weight increased the most in the S&P 500, rising 0.5%. Health Care rose the most in Mid Caps (+0.3%), while Information Technology rose the most in Small Caps (+0.7%).

The Equal Weighted S&P 500 (+5.4%) outperformed the Cap Weighted S&P 500 (+4.9%) and also continues to outperform on a YTD basis.

Growth’s longer term trend of leadership over Value has only been apparent in Large Caps, but this segment had a big short-term reversal in Q2 and July.

Large Caps gained 5.1% (total return) in July, lagging Small Caps (+7.0%) and Mid Caps (+6.2%). YTD, Small Caps are now ahead of the other two subsets, and Large Caps are the laggards.

Year-over-year EPS growth rate for companies with Q2 reports (with about 65% in) currently stands at +4.2%, while revenue growth has come in at a better than expected +2.6%.

Q2 relative to Q1 growth rates have improved for larger cap companies but deteriorated for the smaller firms.

The first month of Q2 reports looks better than feared with a reading of 1.59. This is below the average of 1.81, but given this earnings season’s low expectations, investors should breathe a sigh of relief.

The relative cheapness combined with the prospect of higher tax rates certainly makes us much more interested in Munis now. But we’ll exercise patience, waiting for the negative headlines to fade and interest rate volatility to subside before turning bullish on Munis.

Over the past few months we’ve seen the largest high yield bond fund outflow since 2000. We will exercise patience for now and wait for a better entry point.

Despite the exodus from all bond classes in the last few months, longer term demand for safe spreads is likely to remain strong and investment grade issuance has dropped significantly.

The RAI fell in July and stayed on a “High Risk” signal. We remain cautious and recommend higher quality within fixed income.