Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Running Out Of Excuses
Our latest Up/Down ratio is 1.06. This “three-month” figure is a step back from Q4-22’s ratio of 1.19, and lands in the range of the abysmal readings from the first three quarters of 2022 (1.02-1.07). The current figure also doesn’t have the high look-back figures that 2022’s numbers had to overcome.
Small Cap vs. Mid Cap vs. Large Cap
Small Caps halted their three-month relative performance slide versus Large Caps, which boosted our ratio of ratios back to the twelve-month average.
Growth vs. Value vs. Cyclicals
Like Q1, Growth dominated Value in Q2. The more exaggerated performance gaps were again in the larger market-cap tiers. Our Royal Blue Growth style box is up 22% YTD compared to Royal Blue Value’s +4%.
Additional Factors
Apple’s 9% gain in June helped it to become the first firm to reach a $3 trillion market valuation. For perspective, the combined market cap of the S&P 400 and S&P 600 is roughly $3.5 trillion. AAPL’s weight in the S&P 500 also reached a new high of 7.72%—which means it is a bigger slice of the index than the combined weight of the Materials, Real Estate, and Utilities sectors.
Earnings Momentum - Still Flashing Recession
Our latest Up/Down ratio is 1.07. As we’ve mentioned in the past, the four previous periods in which the ratio dropped this low were all accompanied by recessions. However, the runways of poor figures leading to prior recessions has never been as long as the current one.
Small Cap vs. Mid Cap vs. Large Cap
We’re seeing some very choppy action in our Ratio of Ratios but feel confident in its trend and message. The narrowing in this month’s Small-Cap discount can be attributed to the sharp decline in our Large-Cap median P/E multiple, as the equal-weighted S&P 500 lost 4% in May.
Growth vs. Value vs. Cyclicals
In the last three months, our Royal Blue Growth segment has outperformed Royal Blue Value by 14%, and all of our Value subsets ended May with YTD losses.
Additional Factors
The top-five firms (AAPL, MSFT, AMZN, GOOG, NVDA) ended May comprising 24.2% of the S&P 500. This level of concentration eclipses August 2020’s pandemic high of 23.9%, and is the highest we have on record going back to 1990.
Earnings Momentum
Our latest Up/Down ratio is 1.17. Given the optimistic tone of the earnings season and lower hurdles of 2022, that reading is disappointing. This wide-view vignette is telling us that few firms are growing their EPS.
Small Cap vs. Mid Cap vs. Large Cap
Our Ratio of Ratios is kind of getting out of hand. The latest reading matches the March-2020 pandemic low. A recession—which only small caps seem to be priced for—will probably be needed to see a turning point in this relationship.
Growth vs. Value vs. Cyclicals
Large Caps—both Growth and Value—were the only winners in April. The S&P 500 has outperformed the Russell 2000 by nearly 12% in just the last two months.
Additional Factors
The index’s trading range spanned only 120 points in April—or a bit less than 3% of the previous month’s close. The S&P 500 has a monthly trading range average of a little over 9% since the start of the pandemic and, to find a month calmer than April, you’d have to go all the way back to July 2019.
Earnings Growth Still Relatively Scarce
Our Up/Down ratio reads 1.19—Q4’s “three-month” result is somewhat higher than the range of the previous three quarters’ final numbers (1.02-1.07). Still, the current reading ranks in only the 22nd percentile of observations in our 39-year history.
Small Cap vs. Mid Cap vs. Large Cap
March’s huge Large-Cap outperformance sent our Ratio of Ratios tumbling to its lowest level since the start of the pandemic. Measured from the contemporary relative-strength peak of two years ago, the S&P 500 has a total return of +7% compared to -17% for the Russell 2000.
Growth vs. Value vs. Cyclicals
After a brutal 2022, Growth outdid Value in Q1 by a uniform 8% across all three market-cap tiers. That strength reopened the valuation gap between the two styles, which had been narrowing prior to March.
Additional Factors
AAPL (+12%), MSFT (+16%), GOOG (+15%), NVDA (+20%), and META (+21%) all posted tremendous results in March, while the average S&P 500 stock was down 1%. Those five mega-firms, representing 20% of the index weight, were responsible for 80% of last month’s gain and led to the largest monthly performance gap between Cap Weighted and Equal Weighted (4.6% spread) since March-2020, when the disparity was a 5.7% spread.
Whittled Down by Pinched Margins
Our Up/Down ratio reads 1.27. That is noticeably higher than the other three “two-month” figures of 2022, but still well below the historical average. Given the dour direction of reported- and estimated earnings, it’s a bit surprising that we’re seeing even a small pop in the results.
Small Cap vs. Mid Cap vs. Large Cap
We’re now three years removed from the 2020 COVID market panic, when, over the course of four weeks, the S&P 500 and Russell 2000 lost 30% and 40%, respectively. That action sank our Ratio of Ratios to levels not seen since the height of the Tech Bubble. The Small-Cap discount, at present, is not too far removed from 2020 lows.
Growth vs. Value vs. Cyclicals
Within the Mid- and Small-Cap tiers, Growth seems to be forming a relative-strength bottom versus Value. However, in our Royal Blue space, where Growth peaked much later, no evidence of a bottom has yet developed.
Additional Factors
As the market slumped in February, we saw more follow through from the three mega-cap dogs of 2022: TSLA, NVDA, and META all gained a uniform 18% for the month. Those three stocks, just 4.6% of the S&P 500’s weight, are responsible for nearly half of the index’s modest +3.7% YTD total return.
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May 2026 Issue
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