Momentum has been the horse to beat, but are small and mid caps making a run?
Main U.S. indexes surge; Dow out front, up ~3.2%
Financials lead S&P sector gainers; Real Estate weakest group
Euro STOXX 600 index down ~0.5%
Dollar jumps; bitcoin rallies ~8%; crude edges green; gold down >2.5%
U.S. 10-Year Treasury yield jumps to ~4.45%
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MOMENTUM HAS BEEN THE HORSE TO BEAT, BUT ARE SMALL AND MID CAPS MAKING A RUN?
When it comes to major style factors that have historically driven portfolio returns, Momentum has been leading the pack this year.
However, in the wake of Donald Trump's election victory, which has stoked bets on economic policy shifts that could boost deficits and inflation, traders are watching closely to see if emerging relative strength shifts on Wednesday will have staying power beyond just initial knee-jerk reactions.
Major investing style factors include stocks discounted to their fundamentals (Value), financially-sound companies (Quality), size (Small Caps), stable, lower-risk stocks (Low Volatility), and stocks exhibiting upward price trends (Momentum).
To this, let's add in as separate factors Mid- and Large-Caps, high-growth companies (Growth), and those stocks that provide income (Dividends).
Through the Tuesday's close, the SPDR S&P 500 ETF Trust SPY.P was up 21.3% year-to-date (YTD).
Here is a graphic showing the YTD factor percentage changes as well as how they have performed vs the SPY (factor/SPY ratio change) through Election Day close:
Momentum MTUM.K was out front with a 30.5% YTD advance. It was followed by Growth SPYG.P up 28.9%. Large caps, up 27.5%, rounded out the top three. All of these groups are outperforming the SPY this year.
Quality QUAL.K was up 21.4%, which put it roughly flat with the SPY's YTD gain.
Low Volatility SPLV.P (+14.0%), Mid Caps IJH.P (+13.8%), Value SPYV.P (+12.9%), Small Caps IWM.P (+11.7%) were all positive for the year, but underperforming the SPY.
Dividends NOBL.Z (+10.2%) were the biggest laggard.
Of note, the initial reaction to the election results has all of these style factors higher on the day so far. However, it's Small- and Mid- Caps leading the charge, and strongly outperforming the SPY:
Large Caps, Growth and Value are trading roughly in line with the SPY's rise, while Momentum is actually among the underperformers.
Thus, as the style factors head down the stretch and into the 2024 finish line, traders will be watching to see if these relative strength shifts persist.
(Terence Gabriel)
*****
FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:
MORTGAGE SEESAW: RATES JUMP UP, DEMAND TUMBLES - CLICK HERE
U.S. STOCKS SURGE TO RECORD HIGHS, BUT TRADERS EYE YIELD JUMP- CLICK HERE
FROM RED TIDE TO GREEN TIDAL WAVE, U.S. STOCKS POISED TO JUMP ON TRUMP WIN - CLICK HERE
U.S. FISCAL RISKS MAY LURE BOND VIGILANTES - CLICK HERE
STOXX EYES BEST DAY IN A YEAR, VOLATILITY CRUSHED - CLICK HERE
EUROPE BEFORE THE BELL: FUTURES RISE, NOVO EARNINGS - CLICK HERE
'TRUMP TRADES' IN FULL SWING - CLICK HERE
2024StyleReturnsthroughElectionDay https://tmsnrt.rs/3YG0kYb
StyleReturnssinceNov5 https://tmsnrt.rs/3UDyLgV
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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