Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Our Ratio of Ratios ends 2022 at a two-and-a-half-year low. Like 2019, 2020, 2021, and 2022, Small Caps seem primed for outperformance in 2023. Some kind of economic turmoil (perhaps underway) is probably needed to jolt them back into favor.
We wrap up 2022 with the S&P 500’s only positive performance quarter for the year—ending the longest quarterly losing streak (three quarters) since the Financial Crisis (six quarters). The year also drew some comparisons to the deflation of the Tech Bubble, as S&P 500 Value (-5%) demolished S&P 500 Growth (-29%) by the widest margin since Y2K.
Value stocks have had incredible performance relative to Growth. At the end of October, IVE (iShares S&P 500 Value) had a 20% YTD advantage over IVW (iShares S&P 500 Growth). That’s easily the largest annual performance gap in favor of Value: Over the 22-year history of data, no other year reached double digits.
The S&P 500 pegged its third consecutive quarterly loss, a remarkable feat for the Index. It hadn’t produced back-to-back quarterly losses (total return) since the Great Financial Crisis. Investors opening their quarterly statements in the next week or so, accustomed to a sharp reversal of losses like those in 2011, 2015, 2019, and 2020 may be in for a surprise.
Like puka necklaces and Ska music, Small Cap stocks are having a hard time coming back into favor. Our Ratio of Ratios has been below its median premium for almost four years. A near-term recession may push this relationship even lower, initially, but could provide a catalyst to return to a more “normal” figure.
The back end of August saw the S&P 500 give up about half of the 17% gain achieved from June’s closing low. The nine week bear-market bounce was fairly uniform across the major indexes: S&P 400 +19%, S&P 600 +19%, and the Nasdaq Composite +23%. Over the course of the bounce, impressive gains from AAPL +33%, AMZN +40%, and TSLA +44% accounted for roughly a fourth of the S&P 500’s advance.