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Topical Research – U.S. Equity Trends

- August 26, 2022

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PRICES AND TECHNICALS

U.S. EQUITY RETURNS

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)

DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest and do not reflect any management fees, transaction costs or expenses.

The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.