Prices and Technicals
Prices and Technicals
The equity market rally off the June lows was broad based, with most major indices recovering about half of the years sell-off, markets now focused on a potential retest of lows
Market Returns and Drawdowns
The S&P 500 recovered around half of the bear market but has since given back a portion of those gains, currently down around 14% all-time highs
U.S. Equity Sector Returns
Energy has been the clear outperformer for the year to date, but still lags over longer time horizons
Defensives have unsurprisingly been the top-performing factor for the year to date, while cyclicals, quality and momentum have trailed
S&P 500 Sector Weights
In the S&P 500, technology and comm services squeezed out traditional value sectors like energy & financials for much of the last decade
S&P 500 vs Top 5
GAMMA (formerly FAAMG) has underperformed S&P 500 ex-GAMMA by over 11.0% for the year to date (YTD differential peaked at >15% in June)
Market Breadth
The Tech-heave Nasdaq 100 could still be vulnerable to downside given poor relative breadth if it’s largest holdings (Apple, Microsoft, Amazon, Tesla)
Growth vs Value
Large cap growth remains the top-performing style box over 10 years; growth has underperformed YTD, with large cap outperforming small cap
Value generally outperforms during risk-off periods, similar pattern playing out recently; small cap growth down over 30% from peak
Value has outperformed growth since November 2021, but remains far from the mean over the rolling five-year period implying plenty of mean reversion potential
Earnings and Valuations
Calendar
S&P 500 Valuations
S&P 500 forward valuations have come down substantially due to market sell- off post-COVID stimulus bubble, trading slightly above long-term average
Trailing U.S. equity valuations are still well above average, leaving little room for any earnings disappointment
Valuations vs Forward Returns
Forward P/Es have no predictive power for one-year forward equity returns, but have been reasonably predictive over longer time horizons
Growth vs Value
Growth equity prices still not supported by earnings
Equity Risk Premium
A loose correlation exists between the S&P 500 equity risk premium (ERP) and 1- year forward returns; ERP currently at a mediocre 2.5%
A loose correlation exists between the S&P 500 equity risk premium (ERP) and 1-year forward returns; ERP currently at a mediocre 2.5%
Sales & Earnings Growth
Sales and earnings growth expected to decelerate but remain healthy in 2022; impact of inflation is a wild card
Sentiment
Springtide Equity Sentiment Composite
U.S. equity sentiment rebounded to 46% after dropping to 15% in June, the most pessimistic reading since 2009, but has since slipped back below 40
Average forward returns have been significantly higher when composite reading <30%; short-term range of returns however remains unpredictable
S&P 500 Moving Average
The S&P 500 is currently -6% below it’s 50-week moving average, recovering from June low of -17%, but off it’s August high of -2%
The stock market rallied >10% since the % of stocks trading above their 200-day MA crossed above the 15% mark on June 22nd; once again, proving a good short-term buying opportunity
Consumer Sentiment
UofM Consumer Sentiment cratered to 50 in June, the lowest reading since the inception of the survey, but has since modestly recovered to 58.2
Consumer Confidence
Consumer Confidence has trended lower over the past year, but remains elevated relative to consumer sentiment
Historically, when Consumer Sentiment is at extreme lows relative to Consumer Confidence, U.S. equity performance has been poor; currently near record lows
Appendix
Valuations (Trailing 12-Month Price/Earnings Ratio)
