It's difficult to know how to invest with building liquidity and growth headwinds while structural trends remain positive.  For equities, one of the simple regime indicators we use tracks moving average crossovers on S&P 500 earnings.  Whenever the 10-week moving average of S&P T12M EPS is higher than the 40-week moving average, we define it as a structurally bullish regime.

During the bullish regime, S&P drawdowns tend to be smaller than in the bearish regimes. The below chart plots the S&P drawdowns from 1y highs against the EPS trend defined market regimes.

We are not too worried that EPS trends are about to turn negative.  US total manufacturing new orders growth is still very strong, which supports EPS growth.

We think investors should still look to maintain equity allocations, but can consider reducing some tactical allocations in light of growing cyclical headwinds.

Get the full picture at variantperception.com.