Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Additional Factors
Our favorite Cupertino-based tech firm is on a roll. Over the past two months, Apple has gained 19.1% and added $160 billion to its market valuation (that’s one Citigroup or two Caterpillars). This advance has propelled Apple back into the exalted 4% club (market cap within S&P 500), joining Microsoft with a similar $1.1 trillion valuation.
Earnings Momentum
As we roll-in the final month of Q2 earnings, our Up/Down Ratio reads only 1.11. This quarter’s figure was looking back to the best period of the 2018 earnings bonanza (2.06 ratio in Q218).
Small Cap vs Mid Cap vs Large Cap
Modest outperformance from the Small Caps helped pull our Ratio of Ratios out of its recent nosedive. Still, this vignette sits at 18-year lows, and there’s no guarantee that the relative valuation plunge in Small Caps won’t resume.
Growth vs Value vs Cyclicals
Our Royal Blue Value segment surged in September and ended ten consecutive quarters of underperformance to Royal Blue Growth. Since the start of 2017: Royal Blue Growth +64.9%; Small Cap Value +5.9%.
Additional Factors
The weather vane on top of the S&P 500 swung violently in September. A sudden preference for Value stocks (not just low volatility) over Growth was intertwined with a dramatic crash in the Momentum factor. Similarly, the Equal Weighted Average, which had been steadily losing ground to the Cap Weighted measure, snapped back and almost pulled even in YTD performance.
Earnings Momentum
Depending on one’s preferred earnings measurement (operational, reported, GAAP, non-GAAP), YOY earnings growth for Q2 will be zero or, at best, the very low single-digits.
Small Cap vs Mid Cap vs Large Cap
Another month of Small Cap underperformance has sent our Ratio of Ratios to a new contemporary low. Looking back to the late 1990s as a guide, a divergence in valuations can persist for several years.
Growth vs Value vs Cyclicals
Our Royal Blue Growth stocks shined with a 2.2% August gain as the rest of the segments faltered. Since the start of 2017: Royal Blue Growth +67.6%; Small Cap Value +0.75%.
Additional Factors
Yields crashed, gold surged, and investors fawned over low-volatility dividend-paying stocks. The giant, deflation-breathing lizard that has plagued our friends in the Far East for the past three decades seemed like it was lurking just off our shores.
Earnings Momentum
For the first month of Q2 2019 earnings, our Up/Down Ratio reads 1.50. This below-average figure was expected as we continue to work through the rough comparisons from 2018.
Small Cap vs Mid Cap vs Large Cap
Just one year ago, this relationship registered a Large Cap premium of 12%. During the last twelve months, the S&P 500 gained 6% compared to a 6% loss in the Russell 2000 (price return only).
Additional Factors
Another record for the S&P 500! Stocks are doing great! Well... not so fast. We closed July with the S&P 500 +1.7% above its high set in the summer of 2018. Contrast that to the S&P 400 and Russell 2000 ending the month still -3.8% and -9.5%, respectively, below last year’s price highs.
Earnings Momentum
Our final Up/Down Ratio for Q1 reads 1.12—in line with the earnings recession of 2015-16. Things don’t get any easier for Q2 as those results will be compared to the highest—and final—Up/Down ratio (2.06) of the 2018 earnings bonanza.
Small Cap vs Mid Cap vs Large Cap
Things are starting to get very interesting in this vignette. A sharp move down into Large Cap premium territory is reminiscent of market action in the late 1990s.
Growth vs Value vs Cyclicals
And the nine previous quarters! In an amazing run, our Royal Blue Growth has now outperformed Royal Blue Value for ten consecutive quarters.
Additional Factors
The metaphysical guarantee of a July rate cut chased away the unpleasantness of the May sell-off. In June, the S&P 500 posted its best month since January, and revisited the all-time highs of April and September of last year. Gains were pervasive in June; Google posted the only monthly loss of the index’s largest 50 firms.
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.
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.
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%.
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