Stock Market Internals Earnings Momentum, Small/Mid/Large Caps, Growth/Value/Cyclicals, and Additional Factors
Additional Factors
A yuuuge market sell-off expected from a Trump win was somehow avoided. Instead of lumps of coal, visions of fiscal stimulus and favorable tax policies danced in traders’ heads. As interest rates dashed higher, the market had a very clear picture of who was naughty or nice.
Earnings Momentum
Our initial Up/Down Ratio for Q3 sports a reading of 1.78. This “one-month” reading is the highest its been in seven quarters.
Small Cap vs Mid Cap vs Large Cap
Small Caps are selling at a 4% discount to Large Caps. Our Ratio of Ratios logged the sixth consecutive month of Small Caps sitting in the discount zone.
Growth vs Value vs Cyclicals
Growth stocks, especially in the Small Cap tier, received an outsized punishment compared to Value. Looking at historical valuations, Growth remains cheap compared to Value.
Additional Factors
The S&P 500 drifted gently lower in October as election uncertainty crowded out the story of a much better than expected start to Q3 earnings. The S&P 500 closed the month only 3% from its all-time high set in August.
Earnings Momentum
Our final Up/Down Ratio for Q2 sports a reading of 1.22. As was the case the two previous months, our final number is the highest since the first quarter of 2015.
Small Cap vs Mid Cap vs Large Cap
Matching our 13-year low made last month, our Ratio of Ratios shows Small Caps at a 6% discount to Large Caps using non-normalized trailing operating earnings.
Growth vs Value vs Cyclicals
Growth remains especially cheap relative to Value in Small Caps and our Royal Blue segment. Small Cap Growth was the best performing segment for Q3 (+9.2%).
Additional Factors
The S&P 500 has quietly put together a string of four consecutive modestly-positive quarters—up nearly 13% for that stretch. Volatility in the most recent quarter was almost non-existent. The only sector not trading with a LTM P/E above its five-year median is Consumer Discretionary.
Earnings Momentum
Adding in the second month of Q2 2016 earnings, our Up/Down Ratio now sports a reading of 1.23. If we isolate the month of August, it was the best second-month result of the past six quarters.
Small Cap vs Mid Cap vs Large Cap
Our Ratio of Ratios made a fresh 13-year low in August. Small Caps are now selling at a 6% valuation discount using non-normalized trailing operating earnings.
Growth vs Value vs Cyclicals
Value stocks edged out Growth in each market cap segment. Small and Mid Cap Value remain the best performing segments YTD, up 14.6% and 13.2%, respectively.
Additional Factors
We made it through the entire month of August without a 1% daily move (in either direction) for the S&P 500. We have to go back to July 8th, 42 trading days, to find the last 1% move. This is the sixth longest streak without a 1% move since 1979.
Earnings Momentum
With the first month of Q2 2016 earnings reports in the books, our Up/Down Ratio sports a reading of 1.55. While still well below average, it is head and shoulders above the past five “one-month” ratios.
Small Cap vs Mid Cap vs Large Cap
With Small Caps outperforming in July, our Ratio of Ratios bounced off its 13-year low. Small Caps are now selling at a 2% valuation discount relative to Large Caps using non-normalized trailing operating earnings.
Growth vs Value vs Cyclicals
Large Cap Value and Small Cap Growth finally joined the rest of the segments in positive territory for the YTD. With the market rally, Value stocks are now significantly overvalued on a historical basis.
Additional Factors
After a handful of failed attempts to breach the 2,130 closing mark set in May of 2015, the S&P 500 finally set a batch of new all-time highs in July. Alphabet +12%, Microsoft +11% and Apple +9% added more than $142B to their market caps.
Earnings Momentum
With the last month of Q1 2016 earnings reports in the books, the Up/Down Ratio sports a final reading of 1.07. This matches our Q4 2015 figure but is still the lowest level see over the last 24 quarters.
Small Cap vs Mid Cap vs Large Cap
Small Caps are selling at a 5% relative valuation discount using non-normalized trailing operating earnings. In the last two years, this forward estimate increased the Large Cap P/E ratio from 16.4 to 18.4, while the Small Cap measure shrunk from 20.2 to 17.4.
Growth vs Value vs Cyclicals
Mid Cap Value stocks have been the place to be for the first half of 2016—up almost 9% YTD. Growth stocks are still relatively cheap versus Value among Small Caps and the Royal Blue segment.
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