U.S. stocks have staged an impressive rally over the past few months. While we like seeing stocks rise, we’re starting to see signs of overbought conditions and stretched sentiment in market indicators we watch. We still believe in long-term fundamentals, but we think a modest pullback may be looking increasingly probable.

Charging Forward

Wall Street has often called this the most hated bull market in history, and for good reason. Even though this bull market is the longest on record, it has been the third-slowest expansion since 1950 based on annualized growth. While slow and steady price appreciation has been frustr

U.S. stocks fell during the holiday-shortened week, with the S&P 500 notching its third weekly loss since October 2019. A dangerous viral outbreak originating in China spooked investors globally, despite improving global data and better-than-expected earnings reports.

All four U.S. indexes we track declined during the week, with the Russell 2000 Index of small cap stocks leading losses. Value stocks weighed down equities with their worst weekly loss since October 2019. Energy stocks slid 4.2% as the worst-performing sector, while utilities gained 2.4% as the best-performing sector.

This week’s economic cale

Leading economic indicators barely grew year over year in December 2019.

The Conference Board’s Leading Economic Index (LEI), a composite of leading data series, fell 0.3% month over month in December. However, as shown in the LPL Chart of the Day, the LEI rose 0.1% year over year in December, pointing to economic growth ahead.

The LEI, which we include as one of the “Five Forecasters” of our Recession Watch Dashboard, has yet to turn negative this economic cycle, even though it has come close over the past few months. That threshold is important, as the index has fallen negative year

Stock markets around the world have hit new record highs this year, but U.S. small cap stocks have yet to join the party.

As shown in the LPL Chart of the Day, the S&P 500 Index has outpaced the Russell 2000 Index, its small cap counterpart, over the past year.

That divergence has become especially apparent lately as the Russell 2000 has struggled to notch its first record high since August 2018. For context, the S&P 500 has posted 42 record highs since then, and the Dow Jones Industrial Average has reached 32 record highs.

Small caps were within 2% of an all-time high on January 16