Articles by Phil Segner Sr. Research Analyst & Co-Portfolio Manager

The Magnificent Seven was trimmed to the Fab Four in Q1 as NVDA (+82%), META (+37%), AMZN (+19%), and MSFT (+12%) beat the overall S&P 500 and contributed just under half of the index’s total return for the quarter. We’ll score GOOGL a bogey (+8%), with AAPL (-11%) and TSLA (-29%) really making a mess of it. Heck, TSLA was the worst performing stock in the entire S&P 500 in Q1—nothing magnificent about that!

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Mega Cap Growth’s excellent start to the year hit a snag in March: The Royal Blue Growth Tier was the only style box in the red. Outside of Small Caps, Growth and Value flavors returned similar results in Q1 (+8% to +10%).

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Our Ratio of Ratios is unchanged from last month, as both Large- and Small-Cap indices posted similar results in March. If earnings remain the same, Large and Small Caps, alike, would need to rise another 10% to match the contemporary, absolute P/E peak set at the end of 2021.

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The Up/Down ratio is 1.14. Looking at the history of data, such a stretch of well-below-average readings should have either spiked higher on an economic upswing by now, or plunged even lower with a recession. The soft landing of 2015-16 posted four quarters of figures below 1.20—the current run has doubled that streak.

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The S&P 500 recorded its fifth consecutive monthly gain in March (+3.1%). For the first quarter of 2024, the index returned +10.2%, not terribly far from the +11.2% seen in Q4 of 2023.

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Phil Segner digs into the earnings data on the latest Leuthold Podcast.

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Like January, February’s CPI figures were hotter than expected. Stickier inflation data, spiking breakeven rates, and fewer Fed cuts haven’t scared the equity market one bit.

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If you happened to be in the business of producing or consuming A.I. chips (NVDA +60%, META +38%) you’ve done very well in 2024 thus far. Also, if one’s business model revolves around the negation of chips—potato or tortilla—this year has been very kind to you (LLY +29%). Those three firms, not necessarily the first names to come to mind to swing the index, have accounted for more than 40% of the S&P 500’s YTD upside.

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Growth continued its fantastic start to the year with Royal Blue Growth +10% YTD. That gain has bolstered the median P/E multiple of this Mega-Cap proxy to 42x—near its contemporary high of 45x recorded at the end of 2021.

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In February, the S&P 500 outperformed the S&P 400 by 2%, helping to widen our Ratio of Ratios by a congruent amount. Currently, the meandering Small Cap discount sits right at both its one- and two-year moving averages.

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Our Up/Down ratio reads 1.06 for the second month of Q4 results. That is a vast improvement from the take-away-your-shoelaces “one-month” reading of 0.66. The current ratio lands toward the bottom of our depressing eight-quarter range of “two-month” figures.

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The S&P 500 posted its fourth consecutive monthly gain (+5.2%) in February. The index has advanced 22% since the end of October.

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On its face, the second month of Q4 reporting was much more positive than the first. After sagging in January, the S&P 500 bottom-up EPS estimate rose back to $54—almost exactly where it stood before Q4 announcements got underway (Chart 1). With just a few stragglers left to report, full-year 2023 EPS will come in at $214. That’s almost 9% better than 2022’s final result.

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Phil Segner examines Nvidia's meteoric rise to the four percent club and juxtaposes it with Cisco's dot-com bubble surge.

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The semiconductor stock is now within spitting distance of becoming the eighth firm ever to enter the prestigious 4% Club (achieving a 4% weight in the S&P 500). Over the last four years, NVDA has posted a return of +945%, pushing its index weight from 0.54% to 3.74%. The stock’s 24% gain in January contributed nearly half of the S&P 500’s +1.6% monthly return.

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At the end of 2023, market breadth finally widened. That short run came to an end in January as the momentum champ of 2023—Large Cap Growth—was back in control.

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After a scorching December for the S&P 600 (+13%), the small cap index underperformed both the Equal- and Cap-Weighted S&P 500 in January. Interest rates—not valuations—seem to be in full control of the situation, as small caps patiently wait for rates to move lower.

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Our Up/Down ratio reads 0.66—a terrible start to Q4 reports; only five prior “one-month” readings were worse than today’s: Q2-2020 and every quarter of 2009. Despite present day economic conditions seemingly quite a bit different than in those five previous cases, roughly the same percentage of firms are failing to beat EPS of twelve months ago.

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The S&P 500 reached new all-time highs in January and closed the month with a modest 1.6% gain. The advance in the numerator widened our downside-to-median estimates another tick.

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Well, it’s Groundhog’s Day Earnings Season… again. With the first month of results for Q4, operating earnings estimates for the S&P 500 continued their long slide from their optimistic highs set back in June of 2022 (Chart 1). The 20% drop in projected EPS didn’t stop the index from rallying +30% over those 19 months. Full-year 2023 operating EPS is now crystallizing around $210—a 7% gain from 2022’s results.

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