Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Earnings Momentum
As we roll in the second month of Q4 earnings, our Up/Down Ratio reads 1.31. While still below average, this is the highest “two-month” figure for 2019 earnings. Our 2018 lookback hurdles are not what they used to be.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios now sits near the lows experienced last summer. More interesting though, our Small Cap trailing P/E ratio is at its lowest absolute level (16.1x) since May of 2012.
Growth vs Value vs Cyclicals
Russell 2000 Small Cap Value is the worst performing style box YTD, down 15%. Its underperformance is nothing new, returning -2% since the start of 2017.
Additional Factors
It took just the last week of February to wipe out the gains of the last four months, as investors fretted about a virus causing a ruinous financial contagion. The invitations for the Bull’s 11th birthday party had already gone out—maybe market participants will be gathering for a wake instead?
Earnings Momentum
Our Up/Down Ratio reads 1.52. This figure is inline with the first three “one-month” readings of 2019, but remains well below the historical average. We’re still two months away from escaping the long shadow of the 2018 earnings bonanza.
Small Cap vs Mid Cap vs Large Cap
Another month of Large Cap outperformance helped push our Ratio of Ratios back down to a level we haven’t seen since last summer. Since going decidedly into the Small Cap discount zone at the end of last March, the S&P 500 has outperformed the Russell 2000 by 10%.
Growth vs Value vs Cyclicals
January’s outperformance gap (6%) between Royal Blue Growth versus Royal Blue Value was the largest in four years. After showing signs of life in late 2019, the Value-comeback story seems all but dead.
Additional Factors
January’s minuscule loss could have been worse if GAMA (Google/Amazon/Microsoft/Apple) hadn’t continued its incredible run. The single-digit gains from those four names, now 16% of the S&P 500 market cap, buoyed the index by a little over 1%.
Earnings Momentum
Our Up/Down Ratio reads 1.07—matching the lows of the 2015-16 earnings recession. It’s a bleak picture but, at the very least, firms have maintained their elevated earnings levels of 2019.
Small Cap vs Mid Cap vs Large Cap
After a handful of years dancing around the long-term average, our Ratio of Ratios got off the fence in 2019. The current gap in valuation has been driven by performance; 2019 became the third consecutive year of small cap underperformance.
Growth vs Value vs Cyclicals
Those institutionally-loved Large Cap stocks—our Royal Blue Growth and Value indexes—were both up 35% in 2019. Another sign of the affection for these stocks is showing up in their deviation from historical valuations.
Additional Factors
The S&P 500 plowed through the dour narratives of 2019 and came within spitting distance of its best yearly performance since the Tech Bubble. Microsoft and Apple, a combined 9.1% of the index’s market cap, punched above their enormous weights and contributed +15% of 2019’s total return.
Earnings Momentum
As we roll in the second month of Q3 2019 earnings, our Up/Down Ratio reads 1.08. Another brow furrowing bad number as we slog through the 2019 earnings-growth hangover.
Small Cap vs Mid Cap vs Large Cap
A third consecutive month of modest outperformance by Small Caps has lifted our Ratio of Ratios from a contemporary extreme registered at the end of August.
Risk Aversion Index: Stayed On “Lower Risk” Signal
While recession and election risks will dominate in the intermediate term, the overall near-term setting is still positive for risky assets. We maintain our favorable view toward credit.
Growth vs Value vs Cyclicals
Since the end of August: Royal Blue Growth +2.2%; Royal Blue Value +14.4%. Our proprietary Large Cap Value Index has now bested Growth in YTD performance.
Additional Factors
Steady incremental gains and only a few very mild setbacks brought the S&P 500 to a fresh all-time high. Fear seemed to leave the market completely as the Volatility Index dipped below 12 for the first time since October 3, 2018… a severe market correction followed shortly thereafter.
Earnings Momentum
Our first month of Q3 2019 earnings has our Up/Down Ratio reading at 1.37. This well below average figure is easily the lowest “one-month” number of our 2019 YOY earnings hangover.
Small Cap vs Mid Cap vs Large Cap
A second month of modest outperformance by the Small Caps has helped lift our Ratio of Ratios from the extreme 23% discount registered at the end of August. If recession fears remain muted, we’d expect this vignette to continue to march toward its long-term normalcy.
Growth vs Value vs Cyclicals
After ten quarters of underperformance, the sun is shining on Large Cap Value. Since the end of August: Royal Blue Growth -0.4%; Royal Blue Value +9.2%.
Subscribe to Advisor Newsletter