Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
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).
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.