Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Earnings Momentum
The Up/Down ratio reads 1.48. Given the change in our daily lives, it’s pretty amazing that we’re so close to a “normal” Up/Down ratio considering the pre-pandemic look-back period.
Small Cap vs Mid Cap vs Large Cap
The Russell 2000 has now outperformed the S&P 500 for six consecutive months. This vignette can still be used to make a relative valuation call for Small Caps over Large Caps, but the window seems to be closing quickly.
Growth vs Value vs Cyclicals
As interest rates climb, the preference for Large Growth continues to flag. Our Royal Blue segment, the darling of 2020, is the only style box in negative territory YTD.
Additional Factors
The sails have gone slack for the S&P 500’s Top-5 firms. Since the trend change at the end of August, the index has advanced 10%. As a group, the five Tech Titans have actually hindered performance during that span (-0.4% contribution).
Earnings Momentum
As we kick-off Q4-20 earnings reports, our Up/Down ratio reads 2.19. We’re a bit surprised to have such a strong number given that the YOY look-back hurdle is pre-pandemic.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios has rocketed toward its historical median over the last two months. Over that time, the Russell 2000 (+14%) has absolutely trounced the S&P 500 (+3%). Buying Small Caps over Large on a relative valuation argument can still be made—but that window seems to be closing quickly.
Growth vs Value vs Cyclicals
Both of the Small Cap styles had a terrific start to 2021 as each gained +6.7%. Small Cap Growth is now the best-performing style box since the end of 2019 (+44%).
Additional Factors
The Equal Weighted S&P 500 has clawed back most of its enormous return deficit. The one-year trailing return favored the Cap Weighted measure by +13.5% at the end of August—the widest rift since we exited the Great Recession. As of the end of January that gap had been whittled down to +3.5%.
Small Cap vs Mid Cap vs Large Cap
Half of the Small Cap discount registered at the end of March 2020 (36%) has now been erased. Small Caps have outperformed Large since that extreme reading (Russell 2000 +71%; S&P 500 +45%).
Growth vs Value vs Cyclicals
Across all of our market-cap breakdowns, Growth beat Value by at least 30% in 2020. In the Royal Blue Index, Growth beat Value by 38%—the largest annual gap between these Growth and Value segments since Growth’s 39% outperformance in 1999.
Additional Factors
Apple, Microsoft, and Amazon collectively added $2 trillion in market cap over the past twelve months, and ended 2020 making up 16.4% of the S&P 500. Those three firms were responsible for a little more than one-half of the index’s +18.4% total return for the year.
Earnings Momentum
Folding in the second month of Q3-20 reporting produces an Up/Down ratio of 1.08. Keen observers will note little deterioration from the “one-month” figure of 1.14. Historically, there is a 20% haircut to the ratio after adding in the second month of results.
Small Cap vs Mid Cap vs Large Cap
November’s Small Cap surge hasn’t affected our Ratio of Ratios in a dramatic fashion. Trailing valuations, both for Large and Small Caps, have increased equally in this vignette.
Growth vs Value vs Cyclicals
In a stunning reversal, Small Cap Value has outperformed our Royal Blue Growth by 22% over the last two months. Despite the huge about-face, Small Value is still very undervalued relative to Large Growth.
Additional Factors
The Equal Weighted S&P 500 completed its third consecutive month of outperformance over the Cap Weighted measure in spectacular fashion. The 3.3% advantage was the largest monthly win for the more democratic flavor since April of 2009.
Earnings Momentum
As we start Q3-2020 reporting, our first Up/Down ratio reads 1.14. Although this observation is in the eighth percentile of our 37 years of data, it is shockingly better than the two quarters that preceded it (0.72 and 0.63).
MTI Slips To Negative
Read this week's Major Trend.
Small Cap vs Mid Cap vs Large Cap
Small Cap Discount = 22%
Using non-normalized trailing operating earnings, Small Caps are selling at a 22% valuation discount to Large Caps, as illustrated in the chart. Since the market lows in March, we’ve seen a steady uptrend in Small Cap performance (Russell 2000 +55%, S&P 500 +46%). However, the valuation gap between the two flavors remains historically very wide, thanks to the previous four years of Large Cap outperformance. Based on full-year 2021 earnings estimates (see table), Small Caps are also at a 22% discount to Large Caps.
Growth vs Value vs Cyclicals
Small Cap Value was the top performing style box in October—the first time in recent memory. Its YTD underperformance versus our Royal Blue Growth segment is still nearly 40%.
Additional Factors
