Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and 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%.
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.
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.
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.
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.
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.
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
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’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.
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.