In past decades, when rates rose, small caps outpaced large. That changed in 2022, and a dramatic shift unfolded against a backdrop of exceptional mega-cap gains driven by the AI boom. Now, rising yields should be viewed as a small-cap headwind—not proof of positive economic strength they once represented.

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Higher yields restored fixed income as a legit revenue source in a balanced portfolio, but using the S&P 500 in the equity sleeve for the 60/40 strategy is not a great option. A more appealing prospect lies further down the cap spectrum: mid- and small caps are much more attractively priced.

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Most indexes exclude the highest risk and most obscure companies; such stocks represent assets that are technically “in play” but rarely appear in mainstream portfolios. We think it’s useful to monitor these “offbeat” companies, as they offer a unique perspective about speculative market exuberance.

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When yields jump, the Financials sector earnings reprice. But, what each underlying industry pays will vary. It comes down to the difference between an “open bar” and a “cash bar.” When happy hour ends, only one crowd notices.

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The rise in the 10-year nominal rate is almost entirely due to the upswing in real rates—not a jump in inflation expectations. This has put pressure on “real asset classes,” like gold, commodities, real estate, and TIPS. But when real rates retreat, these assets can rebound quickly.

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Some sentiment measures reliably correlate (usually contrarily) with forward returns. Others are valuable as regime indicators and gauges of market fragility. The message from leveraged ETF flows is split, with one foot in each camp. Overall, these signals suggest investors may be getting skittish.

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Cheap, increasingly capable AI may undercut the revenues needed to justify massive infrastructure spending. AI might be the largest capital spending boom in American history, but it can’t escape the economic laws of competitive markets, and it’s awfully hard to compete against “free.”

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Despite the official consensus that leveraged ETFs are strictly for short-term trading, a recent academic paper by Carpenter, Lu, and Whitelaw argues the opposite. Their study contends these funds can actually serve as a superior long-term wealth strategy for certain retirement savers.

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For decades, we’ve tracked an indicator that maps bond market conditions to equity performance: the Dow Bond Oscillator—and its track record is exceptional. Despite the S&P 500’s perpetual run to new highs in 2026, the DBO has been on a persistent sell signal.

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Today’s spiking Courage/Fear Ratio reflects optimism borne of an extended market run and AI mania. Yet, history tells us that the path forward is likely to test the mettle of levered bulls, and a full tilt toward Courage at present may be straddling the line between bravery and foolishness.

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Consumer sentiment has hit a recent low, yet cyclical stocks are trading at relative highs. Investors have not yet begun to position for a bearish or recessionary environment.

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Job growth has gone soft, yet unemployment has barely budged. Fewer jobs, but nobody’s catching the boot. In past years, low job growth would’ve sounded economic alarms. Today, it’s closer to noise. The reason for that change is worth understanding, so we developed a better metric: the Employment Diffusion Index.

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In an unusual twist, one of the cheapest industries today is part of the hottest theme piloting the bull market higher: The world’s leading memory chip companies can be purchased at P/E multiples less than 7x earnings.

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S&P 500 >30% earnings growth occurred only two other times since 1990—both were rebounds out of severe downturns. Today’s expansion is propelled by a narrow list of firms exposed to the AI data-center theme; an eventual loss of confidence in such AI outlays could prove disastrous for earnings and stock prices.

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The economy feels like it is doing fine, but AI capex is carrying the load and, sans that, GDP has muddled along for three straight quarters.

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Trading rather cheaply on some metrics, small caps have space for improvement even if the S&P 500 holds up. Still, given the index’s vast earning power amassed from the AI data-center boom, we are not ready to call a major turn in the large-cap/small-cap horse-race just yet.

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The Russell 2000’s July collapse (-3%) was the first time since its ’25 low that it trailed SPX by more than a percentage point. A single month settles nothing. But it was enough to send us under the hood, where a couple of things caught the eye: breadth and lack of staying power.

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In contrast to most factor ETFs, Momentum is a chameleon with the potential for drastic allocation shifts. Since 2013, every sector has experienced a dip to a near zero weight in the SPX Mo index, while at some point, six of 11 made up 25-67% of the weight.

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Growth’s P/E gap between trailing and forward EPS is over 10 points—historically high and challenging the 1999 peak. One’s opinion about Growth depends heavily on whether they are looking backward or forward in their P/E calculations.

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Several leading AI models were engaged to generate personalized investment advice meant to meet the suitability standards required of professional advisors; their results were underwhelming, and yet, enlightening.

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