Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Growth vs Value vs Cyclicals
Our tech-heavy Royal Blue Growth segment faltered toward the end of the year but held up better than any other segment in a rough 2018.
Small Cap vs Mid Cap vs Large Cap
This is the farthest our Ratio of Ratios has dipped into the Small Cap P/E discount zone since 2003.
Earnings Momentum
With Q3 earnings season complete, our Up/Down Ratio stands at 1.85. We’re now left with one quarter of the sweet 2018 vintage to report—but take note of the tough YOY comparison on deck.
Additional Factors
There was a lot less Christmas cheer with the market down 15% through Christmas Eve. The S&P 500 was propped up by a few big firms in 2018. Our 25-Largest firm average ended the year in positive territory and bested the Equal Weighted Average by almost 11%.
Earnings Momentum
Our second Up/Down Ratio of Q3 stands at 1.88—this is the weakest “two-month” reading we’ve seen in the last four quarters. The energy selloff has us thinking about the up/down struggles of the 2014-15 Energy-sector earnings washout.
Small Cap vs Mid Cap vs Large Cap
Small Caps are selling at a 2% valuation discount to Large Caps. Our Ratio of Ratios moved into the Small Cap P/E discount zone for the first time in 15 months.
Growth vs Value vs Cyclicals
Our tech-heavy Royal Blue Growth segment underperformed for the second month in a row. Despite these rare missteps, the group still has a solid YTD return of +8.7%.
Additional Factors
Since the latest trouble began on October 10th, the S&P 500 has experienced gains or losses in excess of 1% in 20 of the 39 trading days. Prior to October 10th, we saw only eight such days during the six month “melt up.” The Equal Weighted Average broke a four-month relative-performance losing streak to the Cap Weighted measure. Over the past 24 months: Cap Weighted +25.5%; Equal Weighted +18.4%.
Earnings Momentum
Our first Up/Down Ratio of Q3 stands at 2.74—the third highest “one-month” figure of the past 34 years. However, it’s by far the lowest “one-month” figure of the past three quarters.
Small Cap vs Mid Cap vs Large Cap
The recent plunge in our Ratio of Ratios is due to significant underperformance in Small Caps. Since the end of August: Russell 2000 -13%; S&P 500 -6%.
Growth vs Value vs Cyclicals
Large Cap Value stocks were the best place to weather last month’s storm as Royal Blue Value lost “only” -6.1%. Small Cap Growth plunged 12.6%.
Additional Factors
After pulling the load for so long, the much loved FAANG stocks proved to be a liability for the index. Coming into the month, the FAANGs accounted for 12.8% of S&P 500 market cap. When October was through, the five firms made up 20% of the losses, wiping out a collective $330 billion (one XOM) in market cap.
Earnings Momentum
We’ve reached the halfway point of the 2018 corporate earnings bonanza! The final Up/Down Ratio for Q2 2018 stands at 2.06—the highest “three-month” figure we’ve seen since 1984.
Small Cap vs Mid Cap vs Large Cap
The sharp divide in performance between Small Caps and Large Caps moved our Ratio of Ratios below the long-term median premium for the first time in seven months.
Growth vs Value vs Cyclicals
Growth stretched its fantastic contemporary outperformance run to seven quarters, besting Value stocks once again. Since the end of 2016: Royal Blue Growth +53%; Royal Blue Value +21%.
Additional Factors
The S&P 500 posted its best quarterly price gain (+7.2%) since the fourth quarter of 2013. However, 37% of the year-to-date returns have come from three stocks: Amazon, Apple, and Microsoft. Those three firms have added a combined $737 billion in market cap since the start of the year.
Additional Factors
The modest January air pocket went completely unnoticed by the index’s largest firms. Between the market peaks, Microsoft, Apple, and Amazon gained 15%, 26%, and 36%, respectively—adding a combined $495 billion to their market values.
Growth vs Value vs Cyclicals
After a brief surge in July, the seemingly-cursed Value stocks quickly resumed their roles as underperformers. Our Royal Blue stock lists (institutional favorites) continue to stretch their valuations higher.
Small Cap vs Mid Cap vs Large Cap
Since the end of February—the last month Small Caps were under the historical 3.5% valuation premium—the Russell 2000 has outperformed the S&P 500: +16% versus +8%, respectively.
Earnings Momentum
The second month of Q2 earnings gives us an Up/Down Ratio of 2.08. This is the highest “two-month” reading of the current tax-reform-juiced-earnings era but a bit of a disappointment given our “one-month” figure.
Earnings Momentum
As we digest the first round of Q2 earnings reports, our Up/Down Ratio sports another outrageous reading of 3.67. If you need a chart to make a case for peak earnings growth, here you go.
Small Cap vs Mid Cap vs Large Cap
The recent run up in Small Cap stocks, coupled with a less rosy (though still fantastic) trailing earnings profile, has given us the largest Small Cap premium we’ve seen in three years.
Growth vs Value vs Cyclicals
Our Royal Blue Low P/E Tier finally outperformed the High P/E Tier for the first time since November. YTD, Value stocks still lag Growth in all market cap tiers.
Additional Factors
The index, still a bit shy of its all-time closing high, did set a new total return high on July 25th—six months after the trouble began in January. The FAANG stocks had some divergent components in July but still provided a big boost for the S&P 500.
Earnings Momentum
Wrapping up Q1 reporting, our Up/Down Ratio is flying high at 2.00. This is the highest “three-month” figure since 1996, even besting those readings immediately following the Great Recession.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios has been stuck in the Small Cap premium range of 2% to 7% for the last ten months—limiting the ability to make a call on market cap preference with this vignette.
Growth vs Value vs Cyclicals
Growth stocks maintained their dominance over Value in Q2. This outperformance has finally leveled relative historical valuations between Value and Growth.
Additional Factors
Small Caps zoomed ahead of Large Caps the last four months. Couple this with the top-25 largest S&P 500 firms still charging higher and we have a very interesting “barbelled” performance profile.
Earnings Momentum
After Q1’s record breaking “one-month” figure, our “two-month” reading could only disappoint. Still, May’s Up/Down Ratio of 2.01 is one of the highest “two-month” figures in 35 years of observations.
Up/Down Earnings: A Little Shrinkage
Small Cap vs Mid Cap vs Large Cap
Other than an initial bump in the Small Cap premium in March, Small Caps’ last three months’ outperformance hasn’t manifested itself in this vignette.
Growth vs Value vs Cyclicals
Growth’s year-and-a-half dominance over Value continues to roll on. Growth’s substantial gains have almost erased Value’s long-standing relative valuation premium.
Additional Factors
Like a thirty-year-old still living with his parents, the market doesn’t seem to have much direction. Since 1950, the median recovery time (if the market does indeed recover) from an intermediate correction is just 33 trading days. We’re now going on 80 trading days since the low set on February 8th… tick tock.
Earnings Momentum
Our first Up/Down Ratio based on 2018 earnings sports a mind-blowing reading of 3.22—the highest “one-month” figure in 35 years of data.
Small Cap vs Mid Cap vs Large Cap
This observation falls neatly in the middle of our 2% to 7% Small Cap premium range we’ve observed over the last eight months—providing no real “call” for this vignette.
Growth vs Value vs Cyclicals
Beaten-up Small and Mid Cap Value stocks performed the best during April. In the Mega Cap space, however, Growth continued to outperform.
Additional Factors
Compared to the first three months of 2018, April turned out to be a bit of a snoozer for the S&P 500. One corner of the index did have a little excitement—Energy stocks. Yes, Energy stocks. The beaten- down, shriveled up sector had its best monthly performance in three years (+9.4%).
Earnings Momentum
Our Up/Down Ratio sports a towering reading of 1.79, which is the highest our “three-month” ratio has been since the exit of the Great Recession.
Small Cap vs Mid Cap vs Large Cap
Small Cap outperformance helped boost the Ratio of Ratios up from a 2% premium at the end of February. This is the first month our Large Cap P/E ratio has been below 20x since the end of April 2016.
Growth vs Value vs Cyclicals
Growth has outpaced Value in each market cap tier for five quarters in a row. Our Royal Blue High P/E Tier was the strongest performing segment of Q1 and outperformed the Low P/E Tier by a spread of 6.7%.
Additional Factors
The index had a quarterly loss for the first time since Q3 2015. Volatility—which had been pretty much non-existent for all of 2017—returned and even had the nerve to persist. With mega caps teetering in March, the Equal Weighted Average scored its fourth monthly win in the last year.