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

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.

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).

The S&P 500 broke a five-month winning streak and stumbled -3.9% in September.

Look, quick! Before it reverses! The Top-5 firms in the S&P 500 have underperformed in September! I’m sorry, you’ll have to forgive my sense of urgency, but the astounding speed and consistency in which these firms have outperformed may have burned the notion into my brain that they can only “go up” (or at the very least beat the index).

Look, quick! Before it reverses! The Top-5 firms in the S&P 500 have underperformed in September! I’m sorry, you’ll have to forgive my sense of urgency, but the astounding speed and consistency in which these firms have outperformed may have burned the notion into my brain that they can only “go up” (or at the very least beat the index).

CPI figures beat expectations but inflation remains below desired levels.The Fed’s change to an average inflation target means a higher desired range. Government spending and depressed consumer confidence highlight our Inflation Scorecard.

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.

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.

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.

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.

The S&P 500 continued to shrug off long-term valuation averages, gaining 7% in August.

With “reopening” taking a pause, we expect global policies to remain accommodative even longer. Among fixed income, we like corporate credit, which includes both investment grade and high yield bonds.

The S&P 500 gained another 5.5% in July and now stands 49% above its lowest close in March.

Year-to-date, the Equal Weighted S&P 500 has massively underperformed the Cap Weighted index. The return spread of 8.85% (price change) is the widest seven-month performance gap in favor of the Cap Weighted index since the top of the Tech Bubble.

For our Royal Blue segments, the Growth/Value P/E ratio is heading toward Y2K extremes at tremendous speed. We started the year near our long-term average of 2.23x and today it stands at 3.19x—easily the highest reading outside of the Tech Bubble.

Small Caps are selling at a 25% valuation discount to Large Caps. The absolute P/E ratios for both cap flavors have risen roughly 40% from their March month-end lows.

With the first month of Q2-2020 earnings in the books, our Up/Down ratio reads 0.63. This pathetic “one-month” figure joins only four other readings below 0.70 in our 36-year history.

As we wade into the waters of second-quarter earnings, muddied by economic shutdowns and suspended guidance, we thought it might be a good exercise to pull back from the “micro” of firm-level beats and misses and examine the “macro” picture that is the Great Earnings Washout of 2020.

The monthly gains from Microsoft (+11%), Apple (+15%), and Amazon (+13%) provided the entire S&P 500 price gain (+1.8%) in June. In the first six months of this tumultuous year, those three Tech Titans have added a combined $1 trillion in market cap.

The S&P 500 gained another 2% during June and has bounced an incredible 39% off of its March low.