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There’s an old stock market adage that says if the bulls come for Thanksgiving, then the bears will have Christmas. Last month though, Thanksgiving was one of the few days stocks didn’t go up (… but only because the NYSE was closed). No problem. The market found plenty of other November excuses to rally.

This month’s Refresh continues our practice of summarizing the latest earnings season by evaluating the composite results of the S&P 500 member companies.

Will 2023 be remembered as a delightful year with +20% returns, or might it go down as a time when stocks lagged even a risk-free money market fund? We introduce this month’s research topic: The huge return disparity between the capitalization weighted S&P 500 and the equal weighted version.

Read this week 's Major Trend.

The S&P 500’s 9% November advance erased almost all of the previous three months’ losses. The Index now sits very close to its near-term highs set at the end of July.

Value has worked much better within small caps compared to large caps for three of the last four years. This is nothing new, though, as value is historically a much better factor within the less efficient smaller-cap universe.

As we slice and dissect November’s performance, we find comfort in the uniformity of returns for the Cap Weighted measure, Equal Weighted average, and even our market-cap quintiles—which were all up around 9%. That is a stark change from the concentration of returns seen over the last ten months. The Cap Weighted S&P 500 ended November just 1.7% shy (via either price or dividend return) of eclipsing its 23-month-old highwater mark.

Large- and Mid-Cap Growth were the biggest winners (+12-14%), although all style segments benefited from the stock market upsurge. The advance by MC Value, SC Growth, and SC Value (+9% each) flipped their YTD losses to the positive side of the ledger as of November’s close.

November’s rising tide lifted all boats and our Ratio of Ratios is unchanged from the end of October. Absolute trailing P/E values for both Large and Small Caps spiked higher with the market, but remain well below readings seen at similar S&P 500 market levels at the end of July.

Small Cap Discount = 27%

Using non-normalized trailing operating earnings, Small Caps are selling at a 27% discount to Large Caps. November’s rising tide lifted all boats and our Ratio of Ratios was unchanged from the end of October. Absolute trailing P/E values, both for Large and Small Caps, spiked higher with the market, but are well below those seen at similar S&P 500 market levels at the end of July—another testament to this vignette’s most suitable benchmarks (Equal Weighted S&P 500 and S&P 600) lagging over that time period. Looking at full-year 2024 numbers, the Small Cap/Large Cap P/E discount is narrower at 23%.

Small Cap Discount = 27%

Using non-normalized trailing operating earnings, Small Caps are selling at a 27% discount to Large Caps. November’s rising tide lifted all boats and our Ratio of Ratios was unchanged from the end of October. Absolute trailing P/E values, both for Large and Small Caps, spiked higher with the market, but are well below those seen at similar S&P 500 market levels at the end of July—another testament to this vignette’s most suitable benchmarks (Equal Weighted S&P 500 and S&P 600) lagging over that time period. Looking at full-year 2024 numbers, the Small Cap/Large Cap P/E discount is narrower at 23%.

Our ratio reads 1.15—a nice bounce from the alarm-ringing “one-month” figure of 0.94 at the end of October. Still, this result is very much in the range of the past seven quarters’ “two-month” readings, which have an abysmal tally of 1.10 on average.

While recession risk remains high, financial conditions have eased considerably with the recent retracement in bond yields and the dollar. We are in a favorable seasonality window and not being too bearish makes sense at this point.

With the market penciling in four rate cuts in 2024, the consensus appears to have accepted the idea that the last rate hike of the series was in July. We look at various market indicators around the end of previous hiking cycles and compare the historical pattern with today’s episode.

The massive short squeeze in Treasuries had a perfect setup and a powerful catalyst.

The portfolio is allocated among various style categories—maintaining diversification—yet still taking concentrated positions in our favorite industry groups.

Read this week's Major Trend. 

As we put a fork in the S&P 500’s Q3 earnings, our snail trail is now decidedly pointing south. However, the kink you see in Chart 1 should not be viewed as an EPS collapse. An accounting sleight of hand from Berkshire Hathaway—R.I.P. Charlie Munger—shaved off just under $3/share in EPS for the index. If that were added back, the quarterly estimate of $55 would be pretty much unchanged since the start of the summer.

Phil Segner looks at the outsized contribution of the largest seven stocks in the S&P 500 on both the upside and the downside.

Read this week's MTI update

Read this week's Major Trend. 

Performance chasing is one of the most common behavioral errors made by mutual fund investors and represents one of the most heavily traveled roads to poor investment results.  Now, when we use the phrase performance chasing it is universally understood that we are talking about chasing good performance. That is why we are so intrigued with TLT, this year’s fund flow leader among bond ETFs. The iShares 20+ Year Treasury Bond ETF has raked in over $20 billion in new assets this year, but not by posting strong results. Rather, inflows have surged despite returns that are frankly terrible. Such an incongruity deserves a closer look, and this study lays out some of the key storylines behind this surprising development.