Select Industries added Oil & Gas Exploration & Production in April, raising Energy exposure after a more attractive entry point emerged. AI infrastructure remains well represented atop the GS Scores, while Energy and Health Care also rank highly and may provide balance if the AI theme turns volatile.

The S&P 500 rocketed higher in April, posting its first double-digit monthly gain since November 2020. Based on data from 1957 to date, downside to median levels is now -44%.

April market action delivered two rare events: a 13-day winning streak in the NASDAQ and a +12% month  in the S&P 500 (trough to peak). Both have historically pointed toward strong forward returns. And yet they could not be more different in how they get there.

In a strategic pivot, Allbirds, Inc. withdrew from the footwear trade to redeploy assets into an AI data center rental business. Its stock jumped 582% within three days. The notion of a “582% blip” prompted us to further explore the phenomenon of lottery stocks and the behavioral-finance research into investors’ appetite for lottery-like payoffs.

Elevated VIX readings capture the early stages of major bear markets, where anxiety was often justified by subsequent larger declines. Investors should treat VIX readings in the 20-30 range as a transition zone—it is the most dangerous area for premature entry, as it captures both recoveries and the early stages of major bear markets.

The greatest investment risk from the trillions of dollars betting on AI is that overbuilding will lead to excess capacity with competition driving pricing toward marginal costs. Many players are tossing their hats into the ring, but new-era spending booms often end with just a few dominant firms.

Read this week's Major Trend.

One of the most dependable findings of our active/passive research is that stronger markets benefit passive funds, and weaker markets favor active approaches. This tendency showed up in Q1, as mid- and small-cap growth managers outperformed while their value counterparts struggled.

Capital spending booms are often remembered as periods of IT transformation and optimism. Firms race to expand productive capacity, ushering in a new era of efficiency and growth. The current AI wave fits that description, but there is one underappreciated aspect of the frenzy: The asymmetric impact the capex surge will have on corporate profits today, versus several years from now.

The YTD gap between the Equal Weighted S&P 500 and the Cap Weighted measure quickly disappeared in April… it was nice while it lasted. The index’s six largest firms posted an average advance of 23% and contributed more than half of the Cap Weighted return. The double-digit monthly gap between the S&P Top Ten Index and the Equal Weighted S&P 500 was the largest since May 2023.

Mega Cap and Small Cap Growth were the best-performing style boxes of April, overturning recent trends. Russell 2000 Growth saw its best MoM performance since November 2020 (+14.7%).  

Within our L3000 universe, P/E ratios for the average Small and Large Cap stock both rose a similar amount following April’s surge. With all of the market’s twists and turns since last October, our Ratio of Ratios has remained in a tight range, ending April right where it was seven months ago.

The first Up/Down ratio for Q1 is 2.37. This is a step back from the four-year high “one-month” figure of the previous quarter (2.63). The current reading is still robust when compared to our long-term average, but today’s expansion is getting a little long in the tooth, and expecting more advances seems greedy.

The favorable seasonal window is ending, at the same time that monetary easing has become less certain due to worsening inflation pressure. It’s still not time to declare the coast is all clear.

Market-based measures are favorable, and the war-driven confidence shock has partially reversed. Despite recent volatility, the employment picture improved a bit, although full-time employment is a persistent reminder that labor market health remains fragile.

We compiled a list of indicators to watch for potential private-credit contagion, sorted into three tiers. The first tier, with the most direct private credit exposure and sensitivity to liquidity risk, is flashing a red flag; whereas the other two are graded as “cautionary” to “okay”—early signs of contagion, but not yet serious.

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Estimated bottom-up operating EPS for the S&P 500 shot 11% higher following results from the first month of reporting. Upward revisions during earnings season have become the norm for the last several quarters—with projections usually inflating in the high single digits from start to finish. Results for the first quarter seem to be different, with an initial spike standing head and shoulders above previous quarters. Forward quarters have moved higher as well and, in total, have dampened a good chunk of the multiple expansion that would normally follow a double-digit surge in the S&P 500.

Read this week's Major Trend. 

Read this week's Major Trend.