July Market Update

Written by Alex Shen, CFA and Andy Pratt on .

After taking a one-month break, Large Growth stocks continued their year-to-date outperformance in July, returning 2.6% on the month and 16% so far on the year.  To put that into perspective, the lowest performing Size and Style market segment is Small Value which gained 0.7% in July and only 1.6% so far in 2017.

Interestingly, this is a 180-degree change from 2016 when Large Growth stocks were the worst performers and Small Value stocks the best, highlighting the dangers in short-term performance chasing.

2016 vs 2017 SS

Small Value stocks were the best performers last year but are the worst performers this year

June Market Update

Written by Alex Shen, CFA and Andy Pratt on .

Through the first half of the year, growth stocks are running well ahead of value stocks and large-caps have a decided edge over small-caps. There is a double-digit return differential between the extreme size and style corners as large-growth stocks advanced 13.3% against small-value’s 0.9% rise. The year-to-date trend reversed in June slightly, however, as the mega-cap darlings faced selling pressure, perhaps a sign they’ve run too far too fast.

201706 SS Chart

May Stock Market Update

Written by Alex Shen, CFA and Andy Pratt on .

It would be easy to conclude the stock market is having a strong 2017 based on a quick glance at the S&P 500 or Dow but a deeper look reveals the market is not participating in the rally evenly. Of the major size and style segments, only larger growth companies were performing well through the end of May as value and small companies struggled to make significant gains.

May 2017 SS Chart

Mega-caps led the way as the five biggest names in the S&P 500, all well-known technology companies – Apple, Alphabet (Google), Amazon, Facebook and Microsoft – were up 25% year-to-date. Since the S&P 500 is a cap-weighted index, these five stocks have the most influence of any group of five stocks, comprising between 12% to 13% of the index. The equal weight S&P 500, which gives these companies a combined 1% weight, is more than two percentage points lower than the cap-weighted index on the year. The Russell 2000, a small-cap index, was up just 1.5% through the end of May. Most of the market’s performance is being driven by a small number of firms.

February Market Update

Written by Alex Shen, CFA and Andy Pratt on .

Large-caps and growth stocks outperformed for the second month in a row in February leading to a slight year-to-date growth edge across all size groups: +2.7% vs LV, +1.8% vs MV and +1.7% vs SV. The S&P 500 is already up nearly 6% year-to-date after advancing 4% in February while the Russell 2000 advanced a more modest 1.9% during the month and is up 2.3% year-to-date.

SS 201702 Bar Chart

Companies across most economic sectors did well in February though Materials and Telecom stocks were essentially flat. Energy stocks declined 2% continuing the down trend from January.

VIX remains near its lowest levels as the stock market continues to rally and the Term Spread continues to hold steady around 2% signaling a very low chance of a recession in the near term.

201702 Term Spread

We continue to be concerned that much of the asset allocation advice in the industry is relying too heavily on past-30 year returns in financial plan projections leading to overly conservative outcomes that stand too high a chance of failing to meet financial goals. To understand why we are concerned, it is constructive to take a closer look at bonds.