Ferris Bueller offered sage advice: “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” The same applies to this market. It’s moving fast, and if you don’t stop and look around, you may miss a turn in sentiment.
One trend noted during the last two weeks of May was the 4.1% outperformance of large cap value stocks over large cap growth stocks.1 During this two-week run, value had one of its best five-day periods since 2009. But there is a caveat: These strong returns originated from a position of weakness, as growth had been leading value for some time. Overall, growth outperformed for the full month of May as end-of-month strength was not enough to overcome the 8% lead built by growth during the first 15 days of the month.
Here we take a deeper look into the recent value rally and explore whether it’s another “fit and start” or the beginning of a new trend.
Starting from a low point
As shown below, the rolling three-month performance dispersion between growth and value is currently 22%, which corresponds to the 96th percentile. Interestingly, however, this high level of dispersion is still 63% less than the all-time high dispersion of 53%, reached in 1999.
1 Bloomberg Finance L.P. as of 05/31/2020, based on the S&P 500 Pure Growth and S&P 500 Pure Value Index returns from 5/15/2020 to 5/31/2020.
2 Based on a composite metric of Price-to-sales, Price-to-Earnings, Price-to-Next-Twelve-Month-Earnings, Price-to-Book, and Enterprise value-to-EBITDA for large,-mid-,and-small-caps. Large cap as defined by S&P 500 Index, Mid Cap as defined as S&P 400 Index, and Small Cap as defined as S&P 600 Index. To determine large versus mid and large versus small ratios of the fundamental metrics for Large Core, Large Value, Large Growth were compared to Mid Core, Mid Value, Mid Growth as well as Small Core, Small Value, Small Growth, respectively. To determine growth versus value, ratios of the fundamental metrics for Large Value, Mid Value, and Small Value were compared to Large Growth, Mid Growth, and Small Growth. Ratios were normalized by calculating a Z score for each. To calculate a composite score, every fundamental metrics Z score was averaged together. Based on data from 1997 to 2020.
Glossary / Definitions
S&P 400 Pure Growth Index
Focused on mid-caps, S&P Pure Growth Indices includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score.
S&P 400 Pure Value Index
Focused on mid-caps, S&P Pure Value Indices includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score.
S&P 500 Index
A popular benchmark for US large-cap equities that includes 500 companies from leading industries and captures approximately 80% coverage of available market capitalization.
S&P 500 Pure Growth
Focused on large-caps, S&P Pure Growth Indices includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score.
S&P 500 Pure Value Index
Focused on large-caps, S&P Pure Value Indices includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score.
S&P 600 Pure Growth Index
Focused on small-caps, S&P Pure Growth Indices includes only those components of the parent index that exhibit strong growth characteristics, and weights them by growth score.
S&P 600 Pure Value Index
Focused on small-caps, S&P Pure Value Indices includes only those components of the parent index that exhibit strong value characteristics, and weights them by value score.
S&P 1500 Composite Index
The Standard & Poor’s 1500 Composite is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600.
Originally Posted on June 10, 2020 – Charting the Market: Is the Value Rally Sustainable
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