While the primary “trend” remains supportive (higher), a mostly euphoric sentiment backdrop reflects an aggressive, bullish attitude. As a contrarian indicator, sentiment represents a short-term yellow flag. This comes at a time of historical seasonal weakness for NASDAQ and a period of near-term hesitation for the S&P 500 (Big Cap/Index Movers Complex).

Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” While I am not saying that the S&P 500’s uptrend has run its course, following last Friday’s tape action (more below) I believe Wall Street’s sugar high (a state of hyperactivity caused by excessive consumption) towards a certain segment(s) of the equity market has produced a gut check—a test or assessment of courage, character, or determination.

Entering March, the non-U.S. equity Core model overweighted Japan and Germany. China and Canada are neutral, and the U.K., France, Switzerland, and Australia are underweight. The Explore model favored Mexico, Turkey, Brazil, Spain, and the Philippines.

The allocation of International Investment-Grade bonds remained underweight. Rising inflation expectations are bearish for the sector but offset by rising stock market volatility. Price-based measures—rising relative strength and short-term trend—improved during the month to bullish levels.

The sector model remained with a cyclical bias during the month. Entering March, Information Technology and Financials are overweight. Industrials, Health Care, Consumer Discretionary, Consumer Staples, Energy, and Real Estate are neutral. Materials, Communication Services, and Utilities are underweight.

The best way to describe the tape action last week and since the October 2023 low is “the grind higher continues”. Fortunately, the grind higher has recently been taking on more participants, albeit hesitantly and with much consternation. Also, the number of New 52-Week Lows (a guidepost for when the odds of a meaningful decline increase—reach out for a chart) refuses to expand.

From seasonal and cycle perspectives, February is often one of the weakest months of the year for equity performance. However, that wasn’t the case this time around, with equity markets around the globe continuing higher as investors focused on better-than-expected global economic activity and hopes for easier central bank policies.

While various measures of short-term breadth continue to diverge, the equity market maxim “the trend is your friend” remains true. This is especially evident with the Large Cap “Index Movers.” As Don Hagan penned, “The Catastrophic Stop model is still positive, and we are aligned with the message.

From “Mag 7” to “Lag 7?” Not completely, yet. But the number of technology stocks exhibiting relative outperformance is slowly declining, especially when compared to alternative equity market proxies. Also, while still underperforming the S&P 500 YTD, other sectors—Energy, Health Care, Financial, Consumer Discretionary, and Industrial—are slowly moving up the relative strength scale.

This presentation discusses the current NYSE composite, Index Movers, International and Emerging markets, China, Seasonality, 4-Year Presidential Cycles, Sentiment, U.S. Dollar, Energy, Risk Management, Market Trends, and much more.

Entering February, the non-U.S. equity Core model overweighted Canada and Germany. Japan was neutral, while the U.K., China, France, Australia, and Switzerland were underweight. The Explore model favored Brazil, Peru, Spain, Poland, and the Philippines.

Entering February, the strategy continued to favor risk-on leadership but did rebalance. The model remained overweight (versus the AGG benchmark), U.S. Treasuries, High Yield, & Emerging Market Bonds. The portfolio is market weight TIPS & Mortgage-Backed Securities & underweight U.S. Floating Rate Notes, U.S. Investment Grade, International Investment Grade, & International Bonds.

The sector model remained with a cyclical bias during the month, but there were some changes. Entering February, Financials and Communication Services improved and joined Information Technology and Health Care at overweight. Consumer Discretionary, Consumer Staples, Energy, and Real Estate are Neutral. Materials, Industrials, and Utilities are underweight.

The DH Smart Value Portfolio continues to invest in companies producing excess returns through positive economic profitability, supported by solid balance sheets (quality), significant cash generation (profitability), and trading with considerable margins of safety (valuation). We believe these factors will continue to provide rational opportunities for the foreseeable future.

For the most part, the “Index Movers” have held up and marched higher—still bullish. However, under the surface, while a sell signal has not occurred, “conditions” (broad upside participation), which don’t offer a precise timing aspect, are not as rosy and are actually downright poor/weakening.

During my four days in Montana for a wedding, I was struck not just by the state’s beauty but the similarities Montana shares with the condition of certain parts of the domestic equity market.

This presentation discusses current U.S., International, and Emerging financial markets, Large Cap highs, the probability of Fed cuts in March, risk management, market trends, and much more. Financial advisors are encouraged to watch this presentation replay for a comprehensive understanding of the market trends and indicators.

Large Cap Growth/Technology stocks that dramatically influence the price direction of certain capitalization-weighted domestic equity market indices are starting to outperform again. This is at the expense of the broader market and has produced some negative breadth divergences. Unless remedied, it is set up to produce either a time or a price correction.

In the spirit of Occam’s razor, which suggests finding an explanation using “the smallest possible set of elements,” we’ll focus simply on the recent price action of the Large Cap Growth/“Magnificent 7” heavy NASDAQ and S&P 500.

Entering January, the fixed income allocation strategy shifted to risk-on leadership. The model is relatively overweight: U.S. High-Yield, Long-Term Treasurys, Short-Term TIPS, U.S. Investment Grade Corporates, International Investment Grade, and Emerging Market Bonds. The model is relatively underweight in U.S. Mortgage-Backed Securities and U.S. Investment-Grade Corporations.