Articles by Phil Segner Sr. Research Analyst & Co-Portfolio Manager
Additional Factors
A heightening of the trade war coupled with a much more drastic inversion in the yield curve helped the S&P 500 slide lower in each of the four full weeks of May. The average return of the largest 25 firms in the index was buoyed by non-Tech firms for the first time in recent memory.
Growth vs Value vs Cyclicals
Our institutionally-loved Royal Blue Growth stocks were the safe harbor in May; they declined “only” 4.8%. Since the start of 2017: Royal Blue Growth +50%; Royal Blue Value +13%.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios continues to drill down into Small Cap discount territory that hasn’t been explored since the popping of the dot-com bubble. This vignette was registering a 12% Small Cap premium just eleven months ago.
Earnings Momentum
Our Up/Down Ratio reads 1.13. This paltry figure is in line with the “two-month” figures registered during the earnings recession of 2015-2016.
Microsoft Reclaims The Iron Throne
Even our staid and august firm isn’t above a little Game of Thrones clickbait.
After nineteen years in the wilderness, an old king has returned for his throne. The House of Microsoft is once again the most valuable company in the S&P 500 and, as of last month, is the sole occupier of the “4% Club” (i.e., weighting in the index).
Additional Factors
In the span of 146 trading days, the index experienced a -20% trapdoor followed by a +25% rocket ship—bringing us right back to where we started. Microsoft has become the second firm in the S&P 500 to reach the $1 trillion market cap threshold.
Growth vs Value vs Cyclicals
What else is new, right? Growth has been a rocket ship to Value’s tricycle the past nine quarters. The valuation work has shown Growth stocks overvalued relative to Value for some time, but that doesn’t seem to be stopping the performance trend.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios has now spent six consecutive months in the Small Cap discount zone—matching the duration of the only other contemporary discount streak set back in 2016.
Earnings Momentum
Our Up/Down Ratio reads 1.52. As expected, the impossibly-high earnings growth rates of 2018 have reached from the grave to pull 2019’s figures down.
MTI: Edging Higher Within Neutral Band
Read this week's Major Trend.
Estimating the Downside - May 2019
The S&P 500 turned in its fourth consecutive monthly advance in April, rising 4%.
Additional Factors
A steep nosedive followed by a roaring recovery. The index shrugged off an inverted yield curve in Q1. For now, the market prefers the narrative of the remedial powers of lower interest rates over the possibility of a slowing economy.
Growth vs Value vs Cyclicals
What else is new, right? Growth has been a rocket ship to Value’s tricycle the past nine quarters. The valuation work has shown Growth stocks overvalued relative to Value for some time, but that doesn’t seem to be stopping the performance trend.
Small Cap vs Mid Cap vs Large Cap
This is the largest relative Small Cap/Large Cap discount we’ve tracked since June of 2003. After racking up some very good earnings, the absolute trailing P/E ratios for both market cap segments have come down significantly.
Earnings Momentum
After four tremendous quarters of growth, Q4 2018’s final Up/Down Ratio reads 1.46—below our long- term average of 1.51. We expect even lower results in the quarters to come.
Estimating the Downside - April 2019
At the end of December, valuations were finally starting to look interesting again as our S&P 500 downside to median estimate was “only” -13%.
Don’t Hold Your Breath On Inflation
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The latest CPI numbers were slight misses and at the bottom end of their contemporary ranges. The recent rally of risk assets might be the only tail wind we can find for future inflation. The stark difference in durable and non-durable goods inflation is an excellent study in globalization.
Estimating the Downside - March 2019
The S&P 500’s 3% advance in February caused our downside to median estimate to move 3% in the opposite direction.
Additional Factors
The S&P 500 completed its best two month window of performance since the fall of 2010 and has leveled off at an interesting technical juncture—in line with the three false rallies of late 2018.
Growth vs Value vs Cyclicals
Growth stocks reclaimed their dominant position over Value and now lead in every market cap breakdown YTD. Growth also looks overvalued compared to its own history and compared to Value stocks.
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