Cyclicals

Our “Early Cyclicals” composite continues to perform so well—and at such a late stage in the market cycle—that we should probably consider changing its name. This group, which consists of retail, housing, and auto-related industries, is up 29% in the last eight months after stalling out for the first three quarters of 2014. Its “Late Cyclical” counterpart is up just +5% over the same time frame.

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Small Cap Growth stocks were the clear outperformers in May, up almost 4%. Growth stocks are still in favor when comparing YTD figures, with the performance gap especially prevalent in the Small and Large Cap spaces.

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Value stocks, recent underachievers, regained some lost ground in April. Large Cap Value was the month’s big winner—helped in large part by rallying energy firms. Large Cap Growth still leads YTD by more than 5%.

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While our disciplines continue to turn up enough bullish evidence to keep us cautiously positive toward stocks, we are seeing troubling signs by cyclicals (especially the Transports) and junk bonds.

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Growth Continues Run In Q1

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Growth Stocks Dominating Value

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Transports now find themselves in a three-month RS downtrend; it’s too early to tell if this is an important message. Leading up to 14 of the last 16 bull market tops, Transports underperformed for a six to 12-month period prior to the final bull market high.

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Momentum Continues For Growth Stocks

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Growth Strong In Second Half Of 2014

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The S&P 500 record median profit margin of 10.3% is now almost a full percentage point above the last cycle’s peak of 9.4% (second quarter of 2007). Trends across S&P sectors are not as uniform as one might expect, though, with only half of the ten sectors last quarter at profitability levels that exceeded their 2001-2007 expansion highs.

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Growth Stocks Better In November

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Large Cap Value Left Out Of October Surge

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Growth Stocks Better In Rough September

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Large Cap Growth has had an impressive advantage over Large Cap Value in six of the past seven years but that trend is reversing in 2014.

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Growth And Value Go Down Together

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Value strong again in Q2.

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Growth outperformed Value in all market cap subsets: Large Cap, Mid Cap, and Small Cap. It also snapped a five month losing streak with Cyclicals. Despite the reversal, Growth is still lagging YTD, and is extremely undervalued compared to Value.

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In April, Large Cap Value widened its YTD outperformance over Large Growth to 730 bps.

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Growth Takes It On The Chin In March.

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The post-2009 stock market upswing now qualifies as only the sixth cyclical bull market since 1900 to last five years or more. But only three of the previous five-year-old bulls lived to see a sixth birthday.

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