The Up/Down ratio for the first month of Q3 reporting is 2.85. We’ve recently seen some cooling in other earnings vignettes, especially when comparing to the previous quarter, but the Up/Down calculation is at a new high for the cycle.

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Our Ratio of Ratios is back to its five-year “high” as Small Caps clawed back some of their September losses. Our estimated P/E multiple for Small Caps is virtually unchanged from the start of the year (20.0x to 19.8x), while our Large Cap projection has shrunk several points (27.5x to 24.4x).

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Our mega-cap Growth proxy, Royal Blue Growth sank 10% in October as AI-buildout names struggled. Bids rotated to the RB Value segment, which gained 3%. Value’s YTD performance advantage in this mega-cap space has increased to an impressive 20%.

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Market preferences turned on a dime in October as skepticism about AI profitability intensified. The wobble at the top of the market didn’t translate to a washout, however, as the correlation of returns across various segments of equities remained low. Defensive stocks found a strong bid as investors turned to long-forgotten, low volatility names and the index’s rank-and-file. The resulting 6% monthly return gap between the cap-weighted and equal-weighted measures was the largest since April 2009.

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The Up/Down ratio for the final month of Q2 reporting is 1.93, which lands in the top 5% of our dataset. Although a comparison to the highest figure in this vignette’s 43-year history seems unfair, the current reading has retreated from Q1’s “three-month” ratio of 2.21.

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This reading is a few clicks wider than the past two months, as Small Caps have generally lagged Large Caps since the end of June. However, the best proxies for both sides of our Ratio of Ratios had an awful September; the S&P 600 lost 6%, and the equal-weighted S&P 500 was down 5%. 

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The Russell 2000 and S&P 400 lagged the S&P 500 by almost 10% in Q3. The SMID complex’s outperformance enjoyed in the first half of 2026 is no more.

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As rates jumped in September, the S&P 500 showed remarkable resilience, closing the month flat. That fortitude ended at the index level. The average large-cap stock dropped 5%, matching mid- and small-cap losses in the worst month for market breadth in recent memory. Together, it drove equal-weight/cap-weight relative strength through its October 2025 trough to a new 23-year low.

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Q2 estimated bottom-up operating EPS continue to skyrocket as reporting winds down. The current figure of $100 stands at a mind-boggling 23% above the final “pre-reporting” estimate logged at the end of June. YOY EPS growth is now nearing an amazing 50%.

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This matches last month’s “narrowest” reading of the past year. Our Ratio of Ratio’s small-cap discount hasn’t been above today’s level in five years. On top of that, this vignette hasn’t been at its long-term average (Small Cap/Large Cap P/E parity) in eight years.

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After a huge win in July, our Mega-Cap Value proxy continued to outperform Growth in August. Over the last two months: Royal Blue Value +9%; RB Growth -12%.

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From the end of May through August, the S&P 500 advanced 1.4%, not much to write home about. Yet, wild swings in semiconductor and momentum stocks, serious wobbles at the top of the capitalization structure, and a washout and then recovery in the software space, packed those months with excitement.

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The Up/Down ratio for the first month of Q2 reads 2.79—which is notably well above the long-term average, but in the same ballpark as the previous two “one-month” readings. In the current boom, the story of YOY earnings growth has been pervasive across market caps—something that was sorely missed the previous two years.

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This is the narrowest discount we’ve registered in the past year. YTD, Small Cap stocks have generally outperformed Large Caps for the first time since 2020. EPS growth, which has been excellent for both size tiers, is slightly better in the Large Cap space, keeping a lid on that P/E estimate.

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After a 26% gain in Q2, the momentum-heavy RB Growth segment fell an eye-popping 14% in July. On the other hand, RB Value managed a 5% gain. This was the best monthly return for RB Value relative to RB Growth since February 2001.

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At the end of June, the 20 firms belonging to Semiconductor and Semiconductor Equipment industries accounted for two-thirds of the S&P 500’s +13% YTD return. But in July, those high-flying names were down an average of 18% and, surprisingly, the S&P 500 was flat for the month. The top-ten largest firms in the index, which are laggards YTD (led by MSFT, +25%), spackled over the momentum reversal.

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The Up/Down ratio for the final month of Q1 reads 2.21. Windfall, jackpot, and bonanza are all appropriate words to describe the vignette so far in 2026. This reading, reflecting the number of firms reporting YOY EPS growth, surpasses the two prior contemporary peaks: The corporate tax cut of 2018 and the sharp EPS rebound following the depths of the pandemic. Can we keep this broad earnings-growth story moving even higher with Q2 reports just around the corner?

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Our Ratio of Ratios narrowed with excellent Small Cap performance in June. The S&P 600 gained an impressive 7%, while the average stock in the S&P 500 advanced just 2%. Still, this vignette will need many more months of Small Cap P/E expansion to close the gap with Large Caps.

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Royal Blue Growth, our mega-cap proxy, rocketed 26% higher in Q2. The Russell 2000 Growth index turned in an almost identical advance.

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With some serious wobbles at the top of the capitalization structure in June, the S&P 500 still managed to post its best quarterly return (+15%) in six years. Even so, that’s small potatoes compared to a few of the Q2 returns among the S&P 500 factor indexes, as Momentum (+44%), High Beta (+34%), and Growth (+22%) shot to the moon.

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