Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
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.
Earnings Momentum
The final Up/Down ratio for Q4 reads 1.30. This ratio has been below its historical average for the past nine quarters, having trekked from the shadow of the 2018 earnings bonanza right into the pandemic. We expect the reading to be well above-average next month as hurdle rates are set to plummet.
Small Cap vs Mid Cap vs Large Cap
During the first quarter, the Russell 2000 (+12.7%) easily beat the S&P 500 (+6.2%) and the Small Cap discount within our L3000 universe shrank significantly, from 18% to 8%.
Growth vs Value vs Cyclicals
Small Value, easily the worst style-box since 2017, posted a 21% gain in the first quarter. Getting as far away from Large Cap Growth as possible continues to be the best strategy this year.
Additional Factors
Apple, down a seemingly benign 5% over the last seven months, has seen its S&P 500 weight shrink more than 20%, from 7.3% to 5.7%. We see the same story with Amazon. It has lagged the index by 25% since August and, as of March 31st, its 11-month membership in the 4% Club came to an end.
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).