Today in the podcast, three big things you need to know:
• First, we looked at S&P 500 performance when market cap concentration in the biggest names has been high and in the 12-month period after fewer than 10% of stocks have been making new highs. Neither suggests concentration and narrow leadership are automatic sell signals.
and Russell:
• Third, other things that jumped out from our indicators last week, which are constructive for stocks, include the strengthening earnings recovery, the continuation of favorable political tailwinds, and better trends in Small Caps.
If you’d like to hear more, here’s another five minutes. While you’re waiting, a quick reminder that if you’ve found our work helpful this year, we’d appreciate your vote in this year’s Institutional Investor All American Research Survey in the Portfolio Strategy category. Vote is open now, through June 23rd. Now, the details.
Starting with takeaway #1: The Concentration and Narrow Leadership in the S&P 500 that have concerned investors lately Are Likely More Noise Than Signal
• While we understand the logical risks that accompany concentrated markets and those with narrow leadership, we haven’t been convinced that there’s really a signal for forward performance to be gleaned on this issue.
g into market stress (such as:
• It’s also worth noting that when only a handful of stocks are making new 52-week highs, more often than not stocks solidly are up 12 months later.
Valuations Are Closing in on:
• At 27.1x the weighted median FY2 P/E of the Nasdaq (ex negative earners) is close to the highs of 2020 and 2021 of just over 30x, but aren’t as stretched as the highs of the dotcom era.
and Russell:
• Back in 2000 all three indices looked highly stretched. To us this makes the case for a catch-up trade in other parts of the stock market rather than a need for a major market correction.
Wrapping up with takeaway #3: A few other things jumped out from our high frequency indicators last week that are constructive for stocks.
• One of these is the strengthening recovery in earnings sentiment. The rate of upward EPS estimate revisions for the S&P 500 has improved to 57% on the four-week average.
• The improvement in revisions trends has also continued to broaden with 7 of the 11 GICS level 1 sectors now in positive revisions territory for both EPS and revenues. Energy is the only sector currently in negative revisions territory for both EPS and sales, and even there the negative revisions bias is only very slight.
rnings and economic growth in:
• Another positive data point is that political winds are continuing to blow in a stock market friendly direction. We see the resolution of the debt ceiling drama in Washington as important for the stock market since it removes a negative catalyst that many non-US based investors had been focusing on as a reason to be negative on US equities.
data and is getting close to:
• Additionally, DeSantis continues to improve in polling data….
• despite having flattened out a bit in betting markets on expectations that he will win the Republican nomination.
% move on Friday, the Russell:
• What’s new this week is that Small Caps are finally starting to participate in the EPS revisions recovery. The rate of upward EPS estimate revisions has moved up to 50% for the Russell 2000…
of the sectors in the Russell:
• In light of Friday’s jobs report, which saw the unemployment rate move up to 3.7%, it’s also worth remembering that historically Small Caps have tended to see their mid recession low relative to Large Caps around when the unemployment rate starts to pick up.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representatives with any questions.
