Articles by Phil Segner, CFA Co-Portfolio Manager & Sr. Analyst

The CPI figures were hotter than expected and point to more Fed intervention. The most careful consumers and lower-income households are getting slammed in categories of spending we would classify as unavoidable.

The gyrating S&P 500 found a way to end the month perfectly flat. Retailers, casinos, hotels, and resorts all felt the pressure of passing along higher prices to consumers. Energy firms benefiting from an increased slice of consumers’ budgets made up most of the top-25 performing firms in May. That sector has grown from 2.7% of the S&P 500 to 4.8% in the first five months of 2022.

Beat up Small Cap Growth has returned to its September 2020 price level with much improved fundamentals. Over the last twenty months, that segment’s median P/E multiple has moved from 39.7x to 27.1x and is now below its 1982-to-date average.

Our Ratio of Ratios sits right at the 12-month moving average with no clear trend. Small Caps seem priced to outperform but that’s been the case for the better part of four years.

With the second month of Q1-22 earnings in the books, our Up/Down ratio is a very weak 1.06. Even if we are nearing a cycle peak, the level of earnings is still impressive. S&P 500 four-quarter trailing earnings are now 34% higher than the previous peak just three years ago.

A 6.6% gain in the last full week of May brought the S&P 500 right back to where it started the month. As one would expect, the flat market resulted in small changes to the components of our downside estimates, but left our weighted averages for both series unchanged from the previous month.

After nearly two years of persistent and dramatic upward revisions to the forward EPS estimates, there are some recent signs that that party may have ended.

Those once high-flying FAANG stocks continue to run into rough pockets of air. Following Facebook’s 33% dive in February, Netflix (-49%), Amazon (-24%), and Google (-18%) followed suit in April as the latter two trillion-dollar firms posted their worst monthly returns since 2008. Only Apple—which still carries an enormous 7% weight in the S&P 500—has avoided a recent gut-wrenching plunge.

Our Ratio of Ratios sits at its twelve-month average after an awful month for stocks in both market-cap tiers. The absolute trailing P/E ratios for both Small- and Large-Cap stocks in our L3000 Universe are down significantly from the start of the year.

Our Ratio of Ratios sits at its twelve-month average after an awful month for stocks in both market-cap tiers. The absolute trailing P/E ratios for both Small- and Large-Cap stocks in our L3000 Universe are down significantly from the start of the year.

With the first month of Q1-22 earnings in the books, our Up/Down ratio is 1.08. Gone are the easy hurdle rates of 2020. This abysmal figure sits in the sixth percentile of observations for our 38-year history.

The April haircut in the S&P 500 (-8.8%) combined with February and January losses brought a few of our 1995-to-date “Estimating The Downside” measures very close to their 27-year medians for the first time in recent memory. At present, downside to the median is now -16%. Based on 1957-to-date, the S&P 500’s estimated downside to the median is -30%.

The first quarter of 2022 saw crude prices surge 33%. The largest three Energy firms, CVX (+39%), XOM (+35%), and COP (+39%) posted similar gains, resulting in XLE’s best quarterly performance in its 23-year history (+38%). Despite the last three months’ windfall, XLE has a total return of just +5% over the last eight years compared to +168% for the overall index.

A uniform drubbing for Growth in Q1, as all three of our Growth style boxes lost between 13-14%. The Value segments all held up nicely, with returns between -2% and +2%. The 15.6% performance gap between our Royal Blue Value (+1.8%) and Royal Blue Growth (-13.8%) is the widest since Q2-2009.

Our Ratio of Ratios sank a little deeper into Small-Cap discount territory as Large Caps outperformed in March’s bounce. The young bull market, when Small Caps bid to normalize this relationship back to the historical median, seems to be long gone.

With the final month of Q4-21 earnings in the books, our Up/Down ratio is 1.30. This figure is looking more and more “late cycle,” and earnings growth is not equal across the market cap tiers.

The S&P 500 clawed back some of its losses from earlier in the quarter but still declined almost 5% for the first three months of 2022—breaking a streak of seven consecutive advancing quarters.

Another month of contemporary record highs for both headline and core inflation readings…and this data does not include the bulk of the oil surge. A surprise boost in commodity prices from the Russian invasion of Ukraine makes Fed Policy an even more delicate balancing act.

The S&P 500 suffered its first back-to-back monthly decline since the fall of 2020. From its month-end closing high in December to the end of February, the index has shed 8.2%. Over those two months, our downside-to-median estimates have both shrunk by a similar 7%.

The Tech giant—formerly known as Facebook—shed a dramatic 33% of its market value in February. A shocking reversal among the seemingly bulletproof Social/Mobile/Cloud names. That trouncing, combined with much more subtle losses from the much larger AAPL and MSFT, contributed 40% of the S&P 500 losses for the month.