Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Not Bouncing Back
Our latest ratio of 1.05 is awful. The improved earnings picture for the aggregated S&P 500 has not trickled down to the average firm. In this earnings vignette, where one firm gets one vote, EPS growth is still very hard to come by. That fact, and the narrowness of the 2023’s market strength are certainly linked.
Small Cap vs. Mid Cap vs. Large Cap
Our Ratio of Ratios is unchanged from July, as the average stock in both the S&P 500 and S&P 600 experienced similar pullbacks in August: -3.4% and -4.3%, respectively.
Growth vs. Value vs. Cyclicals
After mostly sitting out July’s rally, Royal Blue Growth was the only style box to advance in August. Its YTD advantage over Royal Blue Value is back to 20%.
Additional Factors
The market’s preference swung back to the familiar mega-cap names in August—even as the index broke a winning streak of five consecutive months. Better in up markets and better in down markets is a tough combination to beat. Nvidia (+238%) has contributed as much to S&P 500 performance as Apple (+45%) in 2023, despite starting the year with one-fifth of AAPL’s market cap.
Barely Above Water
Our latest ratio is a dismal 1.01. The “one-month” result is usually by far the strongest reading of a quarter (long-term average ratio of 1.85). You have to go back to July 2020—the depths of the pandemic—to find a worse “one-month” reading.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios continues to narrow as smaller firms finally join in on the stock rally. Both the S&P 600 and Russell 2000 have out-gained the S&P 500 by 4% since the end of May.
Growth vs Value vs Cyclicals
Every one of our style boxes is having a terrific summer. Small Value’s +16% leads the pack over the last two months. Even with their recent advance, median P/E multiples for Small- and Mid-Cap Value stocks are still cheap compared to their 40-year histories.
Additional Factors
During the last two months, the Equal Weighted index has beaten the Cap Weighted version by 1.3%. That’s not much of a turnaround considering the 10.6% advantage for the top-heavy SPX from February to May. The seven largest firms (28% of the index weight) have contributed two-thirds of this year’s 20% gain in the S&P 500.
Running Out Of Excuses
Our latest Up/Down ratio is 1.06. This “three-month” figure is a step back from Q4-22’s ratio of 1.19, and lands in the range of the abysmal readings from the first three quarters of 2022 (1.02-1.07). The current figure also doesn’t have the high look-back figures that 2022’s numbers had to overcome.
Small Cap vs. Mid Cap vs. Large Cap
Small Caps halted their three-month relative performance slide versus Large Caps, which boosted our ratio of ratios back to the twelve-month average.
Growth vs. Value vs. Cyclicals
Like Q1, Growth dominated Value in Q2. The more exaggerated performance gaps were again in the larger market-cap tiers. Our Royal Blue Growth style box is up 22% YTD compared to Royal Blue Value’s +4%.
Additional Factors
Apple’s 9% gain in June helped it to become the first firm to reach a $3 trillion market valuation. For perspective, the combined market cap of the S&P 400 and S&P 600 is roughly $3.5 trillion. AAPL’s weight in the S&P 500 also reached a new high of 7.72%—which means it is a bigger slice of the index than the combined weight of the Materials, Real Estate, and Utilities sectors.
Earnings Momentum - Still Flashing Recession
Our latest Up/Down ratio is 1.07. As we’ve mentioned in the past, the four previous periods in which the ratio dropped this low were all accompanied by recessions. However, the runways of poor figures leading to prior recessions has never been as long as the current one.
Small Cap vs. Mid Cap vs. Large Cap
We’re seeing some very choppy action in our Ratio of Ratios but feel confident in its trend and message. The narrowing in this month’s Small-Cap discount can be attributed to the sharp decline in our Large-Cap median P/E multiple, as the equal-weighted S&P 500 lost 4% in May.
Growth vs. Value vs. Cyclicals
In the last three months, our Royal Blue Growth segment has outperformed Royal Blue Value by 14%, and all of our Value subsets ended May with YTD losses.
Additional Factors
The top-five firms (AAPL, MSFT, AMZN, GOOG, NVDA) ended May comprising 24.2% of the S&P 500. This level of concentration eclipses August 2020’s pandemic high of 23.9%, and is the highest we have on record going back to 1990.
Earnings Momentum
Our latest Up/Down ratio is 1.17. Given the optimistic tone of the earnings season and lower hurdles of 2022, that reading is disappointing. This wide-view vignette is telling us that few firms are growing their EPS.
Small Cap vs. Mid Cap vs. Large Cap
Our Ratio of Ratios is kind of getting out of hand. The latest reading matches the March-2020 pandemic low. A recession—which only small caps seem to be priced for—will probably be needed to see a turning point in this relationship.
Growth vs. Value vs. Cyclicals
Large Caps—both Growth and Value—were the only winners in April. The S&P 500 has outperformed the Russell 2000 by nearly 12% in just the last two months.
Additional Factors
The index’s trading range spanned only 120 points in April—or a bit less than 3% of the previous month’s close. The S&P 500 has a monthly trading range average of a little over 9% since the start of the pandemic and, to find a month calmer than April, you’d have to go all the way back to July 2019.