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

With the second month of Q3-21 earnings in the books, our Up/Down ratio is 1.56. This “two-month” reading hovers just above the 38-year average of 1.53 and is the first “near normal” reading  of 2021.

Spooked by the new Covid variant and a more hawkish Fed, the S&P 500 gave up its November gains in the last few trading days of the month. Its loss of -0.8% was minimal compared to other market cap tiers.

Tesla zoomed 44% higher in October and became the newest firm to reach $1 trillion in market cap. Tesla is now valued at 6.25x the combined weight of Ford and General Motors even though the young upstart sports just one-third of either’s revenue. TSLA and MSFT contributed one-fourth of the S&P 500’s 7% October gain.

Total returns since the end of March: Royal Blue Growth +24%; Small Cap Growth +3%. Small Cap Value continues to be the only style-box that is undervalued compared to its history.

Our Ratio of Ratios’ preferred habitat for the last five months has been a Small Cap discount of 18%-21%. We’re surprised it hasn’t broken even lower as the S&P 500 had a price return of +9.5% over that period compared to +1.2% for the Russell 2000.

With the first month of Q3-21 earnings in the books, our Up/Down ratio reads 2.70. While that falls into the 95th percentile of our 38-year history, it is a far cry from our scale-busting “one-month” figure from July (4.52).

The S&P 500 gained 6.9% in October—it was the best month in a year. The steep rise in prices more than cancelled-out the brief dip in September. However, improving fundamentals limited the adjustments within our downside estimates.

The streak of consecutive positive quarters for the S&P 500 would have been shattered had it not been for our current 4%-Club members. Apple, Microsoft, and Google contributed a combined +75 bps of performance in Q3, while the index’s other 500 or so deadbeat members generated -17 bps.

The revival of the Growth trade has been uneven over the last six months: Royal Blue Growth +16.5%; Small Cap Growth -2.0%. Small Cap Value continues to be the only style-box that is undervalued compared to its history.

Using non-normalized trailing operating earnings, Small Caps are selling at an 18% valuation discount to Large Caps. Our Ratio of Ratios has spent the last four months in a very tight range—fluctuating between an 18-21% Small Cap discount.

With the final month of Q2-21 earnings in the books, our Up/Down ratio reads 1.96. Divot repair should receive most of the credit for our outstanding 2021 figures as the comparisons were some of the darkest days in our economic history.

The S&P 500 shed 4.8% in September—its worst month since the panic of March 2020. This trimming of the numerator helped make our downside to median estimates a little less negative. In fact, these are the “best” figures we’ve seen since February.

The recent bout of market turbulence has taken a little shine off of the two most famous meme stocks. Still, the elevated levels at which both AMC and GameStop trade can be described as nothing short of spectacular.

August CPI numbers fell short of expectations with the m/m figures looking surprisingly normal.
The 10-year breakeven rate is four months removed from its high and in a very tight range.
The headline CPI has outstripped median wage gains for the last five months.

The S&P 500’s stunning recovery off the COVID-panic market bottom hit another milestone in mid-August—a 100% price gain from its March 23, 2020 closing low. The quickest “double” from a bear-market low in the index’s history was still six- to seven-months slower than the “doubles” experienced by the Russell 2000, S&P 400, and the Nasdaq Composite.

Large Cap Growth continued its streak of outperformance over Value (and everything else). This Growth/Value dynamic has been much more muted in Mid and Small Caps.​

Using non-normalized trailing operating earnings, Small Caps are selling at a 21% valuation discount to Large Caps. The relative underperformance of Small Cap stocks continues to push our Ratio of Ratios lower: Over the last six months, the S&P 500 has outperformed the Russell 2000 by almost 16%.

With the second month of Q2-21 earnings in the books, our Up/Down ratio reads 2.03. This is inline with past YOY earnings-cycle highs but somewhat of a disappointment given the record “one-month” figure for July results.

The S&P 500 stayed on cruise control in August, notching its seventh consecutive monthly gain. During that streak, our downside to median estimates have remained in a tight range as both numerators and denominators increased.

The combined share classes of Google ended the month with a 4.25% weighting in the S&P 500. Google is now the seventh firm since 1990 to join the prestigious 4% Club. YTD, Google’s +54% return has added $545 billion to the index’s market cap (that’s one Tesla or three Walmart’s).