New lows continue to outnumber new highs on both the NYSE and Nasdaq, while the NYSE advance-decline line has fallen to new lows—further evidence that participation beneath the surface remains weak. Small and mid-cap stocks continue to lag the major averages, and leadership is concentrated in a relatively narrow group of large-cap, capitalization-weighted names that appear to be benefiting from a flight to quality and perceived safety. At the same time, the macro backdrop remains challenging. The 10-year Treasury yield is holding above 5%, crude oil pulled back, but remains near $100 a barrel, and the Federal Reserve’s latest projections suggest a continued upward trajectory for rates. At the very least, investors will likely have to contend with at least one additional rate increase before year-end. Interestingly, some former high-growth stocks that underwent significant corrections are beginning to attract interest again—not necessarily because investors are embracing aggressive growth, but because lower prices have made their valuations more compelling relative to earnings and expected growth. In effect, some former momentum names are increasingly being viewed through a relative-value or PEG-ratio lens. As a result, many of these names have become extended and vulnerable to a pullback. Bottom line: this remains a highly bifurcated and selective market. The major capitalization-weighted indexes can give the appearance of broad strength even while a significant portion of the market is behaving considerably worse underneath. Until breadth improves, new highs expand, and leadership broadens beyond a concentrated group of names, I would continue to treat the strength in the headline indexes with a degree of skepticism and caution. We currently maintain a relatively light number of long positions. $TWLO, $DE, and $TEVA have held up well and continue to stand out as our strongest performers. On the defensive side, we remain short $IWM. We reduced the size of what had been an overweight short position, but continue to maintain a hedge given the ongoing weakness in small caps and the broader deterioration beneath the surface.