Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Earnings Momentum
With the second month of Q2-21 earnings in the books, our Up/Down ratio reads 2.03. This is inline with past YOY earnings-cycle highs but somewhat of a disappointment given the record “one-month” figure for July results.
Small Cap vs Mid Cap vs Large Cap
Using non-normalized trailing operating earnings, Small Caps are selling at a 21% valuation discount to Large Caps. The relative underperformance of Small Cap stocks continues to push our Ratio of Ratios lower: Over the last six months, the S&P 500 has outperformed the Russell 2000 by almost 16%.
Growth vs Value vs Cyclicals
Large Cap Growth continued its streak of outperformance over Value (and everything else). This Growth/Value dynamic has been much more muted in Mid and Small Caps.
Additional Factors
The S&P 500’s stunning recovery off the COVID-panic market bottom hit another milestone in mid-August—a 100% price gain from its March 23, 2020 closing low. The quickest “double” from a bear-market low in the index’s history was still six- to seven-months slower than the “doubles” experienced by the Russell 2000, S&P 400, and the Nasdaq Composite.
Earnings Momentum
With the first month of Q2-21 earnings in the books, our Up/Down ratio reads an incredible 4.52. Since we were building-off one of the weakest readings in this vignette’s history (0.63 from Q2-20), we knew a big number was coming but, still, this is quite a shock.
Small Cap vs Mid Cap vs Large Cap
Using non-normalized trailing operating earnings, Small Caps are selling at an 18% valuation discount to Large Caps. At the end of March, we had an 8% discount for Small Caps. Since then, the Russell 2000 has done its best to tread water with a +0.5% gain, while the S&P 500 has shot +11.1% higher.
Growth vs Value vs Cyclicals
Large Cap Growth is back in gear and nearing its September 2020 relative-strength high versus Large Cap Value.
Additional Factors
The combined share classes of Google ended the month with a 4.25% weighting in the S&P 500. Google is now the seventh firm since 1990 to join the prestigious 4% Club. YTD, Google’s +54% return has added $545 billion to the index’s market cap (that’s one Tesla or three Walmart’s).
Earnings Momentum
As we roll-in the final month of Q1 earnings, our Up/Down ratio reads 1.93. This incredibly strong “three-month” figure falls into the 94th percentile of our 38-year history—and is just shy of the first two (tax-rate juiced) quarters of 2018.
Small Cap vs Mid Cap vs Large Cap
Using non-normalized trailing-operating earnings, Small Caps are selling at a 21% valuation discount to Large Caps. Measured back to March, our Ratio of Ratios has delved deeper into Small Cap discount territory—from 8% to today’s 21%.
Growth vs Value vs Cyclicals
Large Cap Growth came storming back in Q2 and closed its performance gap with Value and Cyclical stocks. Small Value still leads all the other style boxes: +26.7% YTD.
Additional Factors
The much-publicized rotation out of Growth and into Value and Cyclical stocks may have ended in Q2. Bond yields retreated and the specter of ruinous inflation receded. Also gaining traction: the notion that outrageous earnings and economic growth numbers we’re currently seeing are not long for this world. From bust-to-boom-to-moderation in record time?
Earnings Momentum
As we roll-in the second month of Q1-21 earnings, our Up/Down ratio reads 1.93. This is comparable to some of the best ratios of the 2016-2019 earnings cycle and, given the earnings divot of 2020, we expect to see similar figures through the rest of the calendar year.
Small Cap vs Mid Cap vs Large Cap
Using non-normalized trailing operating earnings, Small Caps are selling at a 14% valuation discount to Large Caps—matching April’s Ratio of Ratios. Absolute trailing multiples shrank by equal amounts for both market-cap tiers as another darker, “pandemic month” rolled off the back end.
Growth vs Value vs Cyclicals
April’s Large Cap Growth bounce didn’t follow through in May. Growth’s 2020 relative gains have been nearly erased in the Mid and Small Cap spaces. Large Caps still have a ways to go.
Additional Factors
In May, we saw a reversal of April’s reversal—quickly bringing us back to the contemporary trends of Value and Cyclical stocks beating Growth, Equal Weighted beating Cap Weighted, and the Tech Titans failing to keep pace. The Equal Weighted S&P 500 has outperformed the Cap Weighted measure by 15.4% since August 2020.
Earnings Momentum
With the first month of 2021 earnings in the books, our Up/Down ratio reads 2.75. As expected, the base-effect helped kick the ratio into rarified air. This vignette should produce 2018-like figures through the end of calendar-year 2021.
Small Cap vs Mid Cap vs Large Cap
In April, Small Caps took a break from their ascent toward the long-term median of the Ratio of Ratios. Trailing earnings’ profiles are now exclusively “pandemic.” A downward bias on absolute valuations should start to materialize in the coming months.
Growth vs Value vs Cyclicals
Large Growth was the best-performing style box for April but it has underperformed nearly everything else YTD—most notably, Small Cap Value and our Deep Cyclicals Group.
Additional Factors
The rank-and-file rally we’ve seen since August took a break as the five Tech Titans (22% of the cap weight) regained their footing and contributed 40% of the month’s return. Is it a coincidence the ten-year Treasury yield had its first significant monthly decline since July? Most certainly not.