Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Earnings Momentum - Positive Direction
The Up/Down ratio reads 1.32—the best quarter-end figure since Q4-21. More firms outside of the mega-cap space seem to be participating in the EPS-growth story for the first time in two-and-a-half years.
Large Cap vs Mid Cap vs Small Cap
Our Ratio of Ratios now sits at the widest Small Cap discount of the last 18 months. The Small Cap advantage generated in July was gradually undone in August and September, with the S&P 400 and Equal Weighted S&P 500 (the best proxies for this study) both ending Q3 with 9% gains.
Leadership Dynamics: Growth/Value/Cyclical
Both Mid- and Small-Cap Value advanced 10% in Q3, easily outpacing all the other style boxes. Yet, since these two segments have been such laggards in this cycle, they’re still the only pockets in our universe with median P/E multiples below their 1982-to-present average.
Other Market Undercurrents
The index ended September with its fifth-consecutive monthly gain and fourth-consecutive quarterly advance. Ten of the last eleven months have been positive, resulting in a 37.4% price gain. A window like this doesn’t come around very often—since the Y2K bubble, the only two runs that can top today’s are the eleven-month periods ending January 2010 (+46%) and February 2021 (+48%).
Earnings Momentum - Surprise Bump
The Up/Down ratio reads 1.32—this is the highest “two-month” figure we’ve seen over the last two-and-a-half miserable years. The 3,600 firms reporting in August had a standalone ratio of 1.40—which is, historically, a decent level of higher YOY EPS.
Small Cap vs Mid Cap vs Large Cap
The Small Cap discount widened once again, as the long-running theme of Large Cap leadership over Small Caps resumed in August. The S&P 600 SmallCap index lost 2%, while the Equal Weighted S&P 500 gained 2%.
Growth vs Value vs Cyclicals
Royal Blue Growth (+4%) was our best performing style box in August. That gain has pushed this large-growth proxy’s median P/E ratio to 42.8x—the most extreme observation since the contemporary peak of 45.0x set in December 2021.
Other Market Undercurrents
Seven of eleven underlying sectors outperformed the overall index in August (+4.5% versus +2.3%, respectively). However, those seven subsets make up just 48% of the S&P 500. The +1% returns contributed by Info Tech and Communication Services (which comprise 39% of the S&P 500) highlight just how much the index depends on those two tranches of firms.
The Slump Continues
The Up/Down ratio reads 1.13—this marks the 10th consecutive quarter of below-average “one-month” results, with eight of those coming in at a level previously reserved only for economic recessions (including the current reading).
Small Cap vs Mid Cap vs Large Cap
The S&P 600 (+10.7%) outperformed the Equal Weighted S&P 500 (+4.4%) in July—the widest margin in three-and-a-half years (these two indexes are the best proxies for this vignette). Our Ratio of Ratios, in turn, shrank by a similar margin.
Growth vs Value vs Cyclical
Russell 2000 Value gained 12.2% for July and was easily the best performing style box. As we move into August, YTD results across all style boxes look much more uniform.
Mag 7 Haircut
Confidence was shaken in the bulletproof Mag 7 as only Tesla and Apple (the YTD laggards of the esteemed group) escaped what was otherwise a fairly uniform 5-6% haircut. Those seven magic names shaved 70 bps off the S&P 500’s narrow monthly advance (but still account for half of the index’s YTD performance).
Standing Taller
The Up/Down ratio reads 1.20—the best result for the last month of a quarterly reporting period since Q4-21. This figure towers over the last two years’ readings like Danny DeVito towers over a class of second graders. Tacking on other quarterly observations and you quickly see how “short” the contemporary Up/Down ratio has been.
Small Cap vs Mid Cap vs Large Cap
It took an ugly relative performance month (S&P 500 +4%, S&P 600 -2%) to break out of the 21%-27% twelve-month range for Small Cap discounts. The Small Cap value trap that began five years ago shows no signs of letting up.
Growth vs Value vs Cyclicals
Our mega-cap proxy—Royal Blue Growth—was (once again) the only game in town for Q2. That size tier outperformed the others by 8-9% and was the lone subset on the positive side of the performance ledger.
Additional Factors
The Equal Weighted S&P 500 has underperformed the Cap Weighted structure in 13 of the last 17 months. From May through June, the EW/CW performance gap was 6.3%. Since 1990, we’ve seen two consecutive months of worse EW relative performance just twice—both were in the throws of vicious bear markets: October-November 2008 (-6.6%), and February-March 2020 (-6.4%).
Better But Still Bad
The Up/Down ratio is 1.18. This is the best “two-month” figure since February 2023 (Q4-22 results) but still way below the long-term average. We’re still far from what we’d call pervasive YOY EPS growth.
Small Cap vs Mid Cap vs Large Cap
Our Small Cap discount has hardly budged this year, staying between 23%-26%. Looking at the best proxies for this vignette (the equal-weighted S&P 500 and the S&P 600), that range makes a lot of sense. Those two indexes are up 5.7% and 5.1%, respectively, through the first five months of 2024.
Growth vs Value vs Cyclicals
Our Leuthold Deep Cyclical group continues to have an excellent 2024. This basket of 30 economically sensitive names (NVDA happens to be one of them) is up 15% YTD.
On The Wings Of NVDA
Nvidia’s +27% return in May means that this chip company now has a similar market cap and index weight as Microsoft and Apple (NVDA was less than one-fifth the size of AAPL just 18 months ago). In May, Nvidia contributed a little over one-quarter of the S&P 500’s return. For the first five months of 2024, the firm’s 121% gain has subsidized one-third of the index’s YTD performance.
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