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

The Up/Down Ratio sports a reading of 1.44. Continuing the pattern of the previous two quarters, an above average “one-month” figure has been followed up with a below average “two-month” reading.

Based on 1957-to-date valuation metrics, the S&P 500 potential downside to median levels is -25%. Secular bear markets, however, fall well below median levels; based on a decline to the 25th percentile of 1957-to-date distributions, the S&P 500 would have to fall 36% to 1,591 (not a prediction).

The broken record of ‘easy market returns and no market volatility’ plays on. In the nine months since the election, we’ve had eight monthly S&P 500 gains, and a price return of +15.5%. Some large “old economy” stocks helped the Cap Weighted measure outperform in July. Thus far in 2017, the Cap Weighted measure has outpaced the Equal Weighted Average in six of the seven months.

After a brief siesta in June, Growth got back to dominating Value in July. Our Tech-heavy Royal Blue High P/E Tier is now up 18.4% YTD, and its median P/E just passed 31x.

Small Caps are now selling at a 2% valuation discount to Large Caps. It should be noted that this is only the tenth Small Cap discount observation since 2005.

For the first month of Q2 2017 earnings, the Up/Down Ratio sports an above average reading of 1.95. But, we’ve seen this movie before—the two previous quarters started with similar results, only to end poorly.

Temporary and transitory? The CPI numbers have come in below estimates four months in a row.

The S&P 500 hasn’t seen a down quarter since the summer of 2015. Since then, a series of seven gradual quarterly gains have produced a 26% gain. As Big Tech had a rare misstep in June, large banks carried the load for another small monthly gain in the index.

Value led in all market cap segments during June, but for Q2 overall, Value was left in the dust. Continued momentum extended Growths’ YTD leads—especially in Small Caps.

 The Small Cap P/E premium has been whittled away YTD, from 8% down to zero, as both tiers now sport a trailing P/E of 21.7x.

The final Up/Down Ratio of Q1 shows a reading of 1.47. This is the highest figure we’ve seen in the past two years but it remains stubbornly below the long-term average of 1.50.

This multi-factor estimate of stock market risk is based on a regression to median stock market levels.

The two-month Up/Down Ratio for Q1 results shows a reading of 1.48. Like the quarter before, an excellent “one-month” figure has been dragged down by a second month’s results.

As the numerator of our numerator shrank, the Ratio of Ratios made its way into “Small Cap Discount” territory for the first time in seven months.

Value’s 2016 outperformance gap has been erased in the Large Cap space; Small Cap Value stocks slipped back into negative territory for YTD 2017.

So much for that 2,400 resistance level. The S&P 500 plowed through its March 1st high as we closed out May and started June. Valuations, terrorist attacks, and a cloudier political climate are continually being shrugged off.

This multi-factor estimate of stock market risk is based on a regression to median stock market levels.

Mr. Market bumped his head for the first time in quite awhile. After a streak of five consecutive months with new all-time closing highs, the S&P 500 failed to break through the March 1st highs during the month of April.

2017 is shaping up to be a Growth story. Our Royal Blue High P/E Tier is outperforming the Low Tier by a spread of 10% only four months into the year.

We can say, with confidence, that although the relative P/E relationship sits at its long-term average (3% Small Cap premium), the absolute P/E ratios of both tiers are terribly high.