Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Small Cap vs. Mid Cap vs. Large Cap
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.
Growth vs. Value vs. Cyclicals
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.
Additional Factors
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.
Earnings Momentum
Our Up/Down ratio is 1.54—the second consecutive “two-month” figure coming in right at the long-term average. This vignette’s message remains consistent: For earnings growth, the boom-time off of pandemic lows has come to an end.
Small Cap vs. Mid Cap vs. Large Cap
The Russell 2000’s 4% outperformance over the S&P 500 in February narrowed the discount back to its 12-month average.
Growth vs. Value vs. Cyclicals
Our Royal Blue Growth segment was far and away the worst performing style box in February (again). That once-powerhouse segment has already lost 16.3% YTD. In the last 18 months, Small Cap Value has almost entirely erased Small Cap Growth’s last five years of outperformance.
Additional Factors
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.
Earnings Momentum
With the first month of Q4-21 earnings in the books, our Up/Down ratio is 1.86. This is just a tick below the long-term “one-month” average. The ultra-soft 2020 lookbacks are a thing of the past; building on 2021 earnings figures will prove to be a much more formidable task.
Small Cap vs. Mid Cap. vs. Large Cap
This is the fourth consecutive month with a Small Cap discount greater than 20% for our Ratio of Ratios. The Small Cap discount had narrowed to as little as 8% last March, but since then, the S&P 500 has gained 13% (price only), while the Russell 2000 has lost 8%.
Growth vs. Value vs. Cyclicals
The monthly performance gap between Royal Blue Value (+1.9%) and Royal Blue Growth (-11.8%) is the largest we’ve seen since 2009.
Additional Factors
For a brief period during the January 24th trading day, the S&P 500 was down 12% from the all-time closing high it set just three weeks earlier. The index went on to halve those losses and mask the carnage experienced by the small cap and growth subsets. Big Oil and Big Banks came to the rescue in our Equal-Weighted mega cap basket.
Earnings Momentum
With the final month of Q3-21 earnings in the books, our Up/Down ratio is 1.52. This “average” figure for Q3 seems a little too “late cycle” given the outsized earnings, sales, and margin rates.
Small Cap vs Mid Cap vs Large Cap
This reading marks the widest Small Cap discount of the last 18 months. We seem primed, once again, for Small Cap outperformance in 2022 based on our Ratio of Ratios. However, that process may be grinding and long.
Growth vs Value vs Cyclical
In a reversal of 2020, Small- and Mid-Cap Value dominated their Growth counterparts in 2021. Our Royal Blue Growth and Value segments (mega caps) fought to a YTD draw (+25%).
Earnings Momentum
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.
Small Cap vs. Mid Cap vs. Large Cap
On the back of some pretty atrocious Small Cap underperformance in November, our Ratio of Ratios posted its largest Small Cap discount since September of 2020.
Growth vs. Value vs. Cyclicals
The resurgence of Growth continues to be an uneven story, as the performance gap between Large and Small Caps widened. Results measured since the end of March: Royal Blue Growth +24%; Small Cap Growth -2%.
Additional Factors
The average return of the largest 25 firms ended the month flat. For the first time in 2021, this helped propel the Cap Weighted measure past the Equal Weighted average in the YTD race. The relative gain (+15.5%) enjoyed by the Equal Weighted index over the Cap Weighted measure from 8/31/20 to 5/28/21 has now been more than halved in the last six months.
Earnings Momentum
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).
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