So far, the broad markets are off to a “meh” start to the year with the S&P 500 index sitting very close to where it started in January. And while the big tech names that drove most of the upside we’ve seen over the past few years are getting hit the hardest, some parts of the market (Large Cap Value, International, and Small Caps for example) look good by comparison so far this year.
For a few months now we have been highlighting this shift from Growth to Value, which can be useful in understanding market context. When Growth leads, it tends to be a sign of strength for the overall market and economy. And when Value leads, it tends to be a time for caution. That doesn’t necessarily mean the market is falling, but that expectations for continued growth are muted. In some cases, like 2022, it can signal broad weakness. But for now, that doesn’t seem to be the case.
Is the stock market overvalued here? Possibly. As measured by the Shiller CAPE PE ratio, it is at its 2nd highest value after the Tech bubble of 2000. But again, the stock market can stay overvalued for a while. So for now, we need to keep close tabs on market shifts that can confirm the stock market movement is heading downward.
Unemployment is another factor we’re watching for signs of trouble in the economy. There is much speculation right now about if or when AI will start taking jobs. And while that needs to be considered, it may actually hit the tech and software sectors first. Having spent some time learning about “Vibe Coding,” I can see how the coding and programming jobs could see trouble.
This month’s chart is a look at the Shiller PE ratio I mentioned earlier. Sometimes the visual makes more sense than just mentioning it, so there it is. Current value is 39.78 and the all-time high was just under 45. Is the market overvalued? Sure. Does that mean that it’s time for a bear market? Nope. The Shiller PE is one of many data points to keep in mind to understand where we are and where the market could go from here. I thought it was worth the mention.
Shiller CAPE Ratio, 1881-2026 (Source: multpl.com/shiller-pe)
Our Shadowridge Long-Term Trend indicator remains positive this year with little signs of slowing down. With this trend in-tact, we believe there is little reason to be concerned about the market right now.
Our Mid-Term Cycle indicator just turned negative, but the data has been choppy and not trending enough in either direction. For now we’re just counting it as a mixed-signal but will keep a close eye on it if it starts to accelerate either way.
As of Wednesday night (February 24th, 2026), our Shadowridge Dashboard showed Positive to Negative market sectors as 7 to 4. This is also giving us mixed signals. The sectors that tend to dive the market higher are the ones stuck on the negative side: Tech, Financials, Consumer Discretionary, and Communications. Based on our data, if these start moving to the positive column, then we’d expect the market to rally.
Right now, 9 RGB Bond Indexes are trending positive, above their 50-day Moving Averages. Strength has shifted to lean toward the Interest Rate sensitive bond sectors. The one negative bond sector right now is Floating Rate – which has been a favorite of ours over the past few years. We noticed this earlier and swapped out this holding when it wasn’t acting as expected in our models.
RGB Economic and Interest Rate Sensitive Bond sectors (Source: ShadowridgeData.com)
Traditional Bond sectors are starting to wake up again as the market is getting more volatile. This was not what we saw last time the market corrected in 2022 – when the broad bond market fell almost as hard as the stock market. And while our favorite sector (Floating Rate) isn’t as strong as it has been, in some cases we’ve shifted into High Yield and Emerging Market bonds. Those two bond sectors seem to show the most strength for now.
Bottom Line: We’ve been shifting from lagging sectors to strength as needed in our models to stay on top of where we’re seeing strength. Some factors have us cautious for the future, but for now, the bullish case still holds. And while I’m personally not super bullish on the year – I think we end the year somewhat flat – I hope to be proved wrong, because what I think doesn’t matter as much as what I do in regards to participating in the parts of the market that are trending.
Stay safe out there!
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