We’ve been reticent to draw links between the current bull and that of the late 1990s; we felt the last phase of the earlier episode was so extraordinary it was unlikely we’d see anything similar again in our lifetimes. But statistical parallels are on the rise, including the attempt by the S&P 500 to recoup its 2018 correction losses.
The S&P 500 is on the verge of reversing its early-2018 losses and, if achieved, it would initially be accompanied by six “Red Flags”—which are based on key market indexes failing to record new highs in the 21 trading days preceding a new S&P 500 high. The last time the tally reached “six” was in May 2015—occurring at the final high before an S&P 500 loss of nearly 15% over the ensuing nine months.
Value finally performed well during July, turning in its best month of 2018 on a spread basis. While the factor category is still deep in negative territory for the year, almost 85% of its underperformance is coming from the worst quintile outperforming the universe; meaning Value has mostly struggled because of expensive stocks outperforming, not cheap stocks lagging.
Our Royal Blue Low P/E Tier finally outperformed the High P/E Tier for the first time since November. YTD, Value stocks still lag Growth in all market cap tiers.
The recent run up in Small Cap stocks, coupled with a less rosy (though still fantastic) trailing earnings profile, has given us the largest Small Cap premium we’ve seen in three years.