WBI Weekly News 5/12/14

Markets continued to push higher last week. They were supported by stabilizing inflation trends and renewed optimism about future policy easing. However, asset class performance remains uneven, with significant divergences occurring beneath the surface.

Current Performance of Major Indices

The most notable laggard remains the Magnificent 7. Despite a recent bounce, it is still down -12.38% year-to-date through Friday, May 9th, on a total return basis. These mega-cap growth names, which had led markets higher in 2023, have weighed heavily on broader growth-oriented benchmarks in 2025. The group’s underperformance highlights ongoing investor concerns around valuations, regulation, and shifting interest rate dynamics.

Broader market performance has been more balanced. The New York Stock Exchange Composite Index has posted a positive +1.96% total return year-to-date, outperforming more concentrated large-cap indexes. In contrast, the S&P 500 is down -3.35%, while the NASDAQ Composite has declined -6.95%. This situation reflects continued pressure on tech-heavy segments of the market. Meanwhile, the S&P High Dividend Index, often favored during more defensive or income-focused environments, is down -1.42% year-to-date.

Mid-Cap and Small-Cap Performance

Mid-cap and small-cap stocks have faced the steepest declines. The S&P MidCap 400 Index is down -5.15%, while the S&P SmallCap 600 Index has dropped -9.73%. These areas tend to be more sensitive to borrowing costs and earnings cyclicality. They have underperformed amid rising uncertainty around economic growth.

Style dispersion has also characterized this year’s market. The Russell 1000 Growth Index is down -6.45%, while the Russell 1000 Value Index is nearly flat, boasting a total return of +0.48%. Value sectors, especially those with strong dividends, have held up better as investors rotate into more stable, cash-generating companies.

Fixed Income Market Overview

In fixed income, performance has been more constructive than headlines suggest. The Bloomberg Global Aggregate Bond Index has gained +4.66% year-to-date, benefiting from rate cuts and easing inflationary pressures in overseas markets. Domestically, the Bloomberg U.S. Aggregate Bond Index has returned +2.20%. Despite persistent concerns about higher yields, core bond allocations have positively contributed to portfolio performance. They also helped buffer equity volatility.

As we move through Q2, markets continue to recalibrate around moderating inflation data and shifting monetary policy expectations. While earnings have been mixed, improving breadth and relative strength in diversified benchmarks suggest a more constructive tone. Macro risks remain elevated but hopefully are beginning to subside.

📊 Power Factor Series – YTD Performance through May 12, 2025

The WBI Power Factor Series is designed to provide differentiated, factor-driven equity exposure across dividend and growth-focused strategies. Throughout the first part of 2025, markets have encountered heightened volatility and shifting leadership—producing mixed results across our lineup.

Here’s how the Power Factor strategies are performing year-to-date:

YTD Returns as of May 12, 2025 | Net of Fees | Source: WBI, Bloomberg

• Power Factor All Cap Rising Dividends: +4.76% — This strategy continues to stand out with strong relative strength among dividend growers in a challenging equity environment.

  
  

• Power Factor Growth Momentum: +3.65% — Despite market turbulence, momentum factors have helped offset some broader growth pressure.

  
  

• Power Factor Growth Quality: +2.03% — High-quality growth companies have provided more stability, limiting downside amid broader market weakness.

  
  

• Power Factor Rising Dividends 2500: +3.10% — A broad-based rising dividend strategy that’s held up well relative to core equity benchmarks.

  
  

• Power Factor All Cap High Yield Dividend: -4.97% — Deeper value and high-yield names have faced headwinds in 2025, but the strategy has a forecasted dividend yield of 5.28%.

  
  

As a reference point, the SPDR S&P 500 ETF Trust (SPY) was down -0.18% through Monday, May 12, 2025 according to YCharts.

📈 For a full view of performance, be sure to check out the chart below showing annualized and calendar year returns through April 30, 2025—all reported net of fees.

Source: YCharts, Net of Fee, as of 4/30/2025

Weekly Trend Switch Research Report

🗓️ Date: May 12, 2025

Summary of Model Updates

• Equity Model: ✅ Risk On, with a Bullish Ambient Risk Condition

• Bond Model: 📊 Long Duration High Yield

  
  

📊 Equity Model Analysis

The Trend Switch Equity Model's prediction was -0.6%, nearly unchanged from last week, keeping the model in a Low Risk position. The Ambient Risk Condition remained Bullish, supported by improving market internals.

Key Observations:

• Weekly Return Prediction: Dipped slightly to -0.6%, maintaining a Low Risk posture.

• Fed Funds Rate Sub-Model: Still Bearish.

• Bullish Signals: Advisor Opinion, NYSE Advance/Decline, Up-Volume, and Down-Volume sub-models all indicate Bullish conditions.

• Primary Drivers: Technical, momentum, and economic factors led model movement. Valuation, monetary, and sentiment inputs contributed with lower impact.

  
  

Source: WBI, as of 5/9/2025

Bond Model Analysis

The Bond Model maintains its positioning in Long Duration High Yield Bonds, as credit momentum remains positive, and probabilities continue to favor high yield exposure.

Key Observations:

• Credit Momentum: ✅ Positive

• Credit Probability Breakdown: High Yield: 🔻 Fell from 81.8% → 64.4% (still the highest), Investment Grade: 🔼 Rose from 7.6% → 19.0%, Treasuries: 🟰 Ended at 16.6%

• Duration Signals: Both Duration Momentum and Duration Probability continue to favor Long Duration.

  
  

Outlook & Implications

Our models reflect improving conditions in both equity and fixed income markets:

• The Equity Model remains in a Low Risk, Bullish position, and the forecast holds steady.

• In fixed income, the preference continues for Long Duration High Yield Bonds, backed by positive credit momentum and relative strength in high yield probability.

  
  

📬 We’ll be back next week with updated insights as we continue monitoring this dynamic environment.

DISCLOSURE

Past performance is not indicative of future results. This is not an offer to buy or sell any security. No security, including those mentioned directly or indirectly, is suitable for all accounts or profitable all the time. This information is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. You should not assume that any discussion or information provided here serves as a substitute for personalized investment advice from WBI or any other investment professional. If you have questions regarding the applicability of specific issues discussed to your individual situation, please consult with WBI or your chosen professional advisor. Additional information about WBI’s advisory operations, services, conflicts of interest, and fees are in the Form ADV, which is available upon request or on the SEC’s website at http://www.adviserinfo.sec.gov. WBI is a registered investment adviser. Registration of an Investment Adviser does not imply any level of skill or training.

Net of Fee Performance is net of WBI’s maximum investment management fees. This fee model nets down 100 bps from gross returns on a monthly basis. The actual annual investment fee rate charged may vary (typically between 75 bps and 100 bps, but no more than 100 bps) depending on the market value of assets under management and the specific type of investment services rendered.

Other strategies may have different results.

References to other securities do not constitute an offer to buy or sell.

The S&P 500 Index is a market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S., representing approximately 80% of the total U.S. equity market capitalization. The NASDAQ Composite Index includes more than 3,000 common equities listed on the NASDAQ Stock Market and is heavily weighted toward technology and growth-oriented stocks. The New York Stock Exchange (NYSE) Composite Index tracks all common stocks listed on the NYSE, offering a broader and more diversified market view compared to the S&P 500, with less concentration in mega-cap tech.

The S&P MidCap 400 Index represents 400 mid-sized U.S. companies selected for their size, liquidity, and industry representation, providing insight into mid-cap segment performance. The S&P SmallCap 600 Index measures the performance of 600 small-cap U.S. companies chosen for their market cap, liquidity, and financial viability.

The Russell 1000 Growth Index measures the performance of large-cap growth companies with higher forecasted and historical earnings growth rates. The Russell 1000 Value Index measures large-cap U.S. companies that are considered undervalued based on book value, dividends, earnings, and sales metrics.

The Bloomberg U.S. Aggregate Bond Index is a broad benchmark of the U.S. investment-grade bond market, encompassing government, corporate, mortgage-backed, and asset-backed securities. The Bloomberg Global Aggregate Bond Index is a comprehensive measure of global investment-grade debt, including fixed-rate bonds from developed and emerging markets across sovereign, corporate, and securitized sectors.

The Bloomberg Magnificent 7 Index is a custom index that tracks the performance of seven mega-cap U.S. tech and consumer growth stocks widely viewed as market leaders: Apple, Microsoft, Amazon, Meta, Alphabet, Nvidia, and Tesla.

WBI is an SEC-registered investment advisor located in Red Bank, NJ. Any investment strategy involves risk, including the possible loss of principal invested. You should not assume that any discussion or information provided here serves as a substitute for personalized investment advice from WBI or any other investment professional. If you have questions regarding the applicability of specific issues discussed to your individual situation, please consult with WBI or your chosen professional advisor.

Additional information about WBI’s advisory operations, services, conflicts of interest, and fees are in the Form ADV, which is available upon request or on the SEC’s website at http://www.adviserinfo.sec.gov.

WBI is a registered investment adviser. Registration of an Investment Adviser does not imply any level of skill or training.

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