Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Small Cap vs Mid Cap vs Large Cap
Half of the Small Cap discount registered at the end of March 2020 (36%) has now been erased. Small Caps have outperformed Large since that extreme reading (Russell 2000 +71%; S&P 500 +45%).
Growth vs Value vs Cyclicals
Across all of our market-cap breakdowns, Growth beat Value by at least 30% in 2020. In the Royal Blue Index, Growth beat Value by 38%—the largest annual gap between these Growth and Value segments since Growth’s 39% outperformance in 1999.
Additional Factors
Apple, Microsoft, and Amazon collectively added $2 trillion in market cap over the past twelve months, and ended 2020 making up 16.4% of the S&P 500. Those three firms were responsible for a little more than one-half of the index’s +18.4% total return for the year.
Earnings Momentum
Folding in the second month of Q3-20 reporting produces an Up/Down ratio of 1.08. Keen observers will note little deterioration from the “one-month” figure of 1.14. Historically, there is a 20% haircut to the ratio after adding in the second month of results.
Small Cap vs Mid Cap vs Large Cap
November’s Small Cap surge hasn’t affected our Ratio of Ratios in a dramatic fashion. Trailing valuations, both for Large and Small Caps, have increased equally in this vignette.
Growth vs Value vs Cyclicals
In a stunning reversal, Small Cap Value has outperformed our Royal Blue Growth by 22% over the last two months. Despite the huge about-face, Small Value is still very undervalued relative to Large Growth.
Additional Factors
The Equal Weighted S&P 500 completed its third consecutive month of outperformance over the Cap Weighted measure in spectacular fashion. The 3.3% advantage was the largest monthly win for the more democratic flavor since April of 2009.
Earnings Momentum
As we start Q3-2020 reporting, our first Up/Down ratio reads 1.14. Although this observation is in the eighth percentile of our 37 years of data, it is shockingly better than the two quarters that preceded it (0.72 and 0.63).
MTI Slips To Negative
Read this week's Major Trend.
Growth vs Value vs Cyclicals
Small Cap Value was the top performing style box in October—the first time in recent memory. Its YTD underperformance versus our Royal Blue Growth segment is still nearly 40%.
Earnings Momentum
With Q2-2020 reporting now finished, our final Up/Down ratio reads 0.74. This is slightly better than Q1’s 0.71 reading (although both are historically abysmal).
Small Cap vs Mid Cap vs Large Cap
Using non-normalized trailing operating earnings, Small Caps are selling at a 24% valuation discount to Large Caps. Our Ratio of Ratios has now spent two full years below the 2% long-term-median premium for Small Caps.
Growth vs Value vs Cyclicals
Our Deep Cyclical Group gained 18%, besting Royal Blue Growth (+15%) for the first time in recent memory. Growth stock valuations are stretched to 1999 extremes. Value, while historically overvalued, is a relative steal.
Additional Factors
AAPL (-10%), MSFT (-7%), AMZN (-9%), GOOG (-10%), and FB (-11%) all underperformed individually, and as a group, for only the second time in the last twelve months. Did these firms’ popularity hit a peak in that first week of September, or was it just a much needed breather?
Earnings Momentum
With the second month of Q2-2020 in the books, our Up/Down ratio reads 0.72. We agree that Q2 earnings have come in better than expected, but in this binary study of the “ups” versus “downs,” that element of managed expectations is not captured.
Small Cap vs Mid Cap vs Large Cap
Using non-normalized trailing operating earnings, Small Caps are selling at a 22% valuation discount to Large Caps. August marks the sixth consecutive month that our Ratio of Ratios has indicated a 20% or greater Small Cap discount.
Growth vs Value vs Cyclicals
And all that winning has translated into an extreme stretch in valuations. The median P/E ratio of our Royal Blue Growth segment is now 90% higher than its average measured back to 1982.
Additional Factors
In August, the S&P 500 notched its fifth consecutive monthly gain with the five largest firms accounting for nearly half of its 7% advance. Those companies are now within spitting distance of comprising 25% of the index—that’s a doubling of market cap for the five largest firms in just under three years.
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