Style-Box Update 11/15/21 – Large-Cap Growth Reasserts Itself, But Value Working Too

 

This blog’s “Style-Box Update” done every 6 weeks is being posted this morning in the spreadsheet above, and it shows that while large-cap growth has reasserted itself since June 30th, 2021, the small-and mid-cap “value” asset classes are beating their growth brethren, probably thanks to the energy and financial sectors.

Here’s what is interesting: in the bottom-half of the style-box spreadsheet, I’ve started logging the 1,3, 5, etc. rolling returns for the various asset classes, and note the 15-year returns.

If anyone is interested in making the case that everything’s “stretched” or overvalued, or at minimum has run far too long in one direction, this table might be it.

“Value” hasn’t outperformed “Growth” on a wide scale since 2016, but is doing so this year.

The YTD sector return chart is from Bespoke this morning, and shows Consumer Discretionary leading sector returns this year through 11/15/21, not a surprise given Tesla is the largest market-cap weight in the sector. Per Bespoke, Tesla is still up 30% since 9/30/21 despite the recent drop.

Summary / conclusion: Having to prepare clients for the prospect of bear markets to come in the future, unlike the late 1990’s, it’s tough to find any reasonable value in the United States asset classes, which is not a surprise with a 1.6% 10-year Treasury yield in the US. One of the few asset classes with anything close to an appealing 10-year return is gold (GLD).

The length of this bull market can be calculated either from the bottom in March ’09 (12 – 13 years), or the point when the SP 500 made a new all-time-high in late April – early May ’13 (8 years old).

Split the difference and we have a 10-year old secular bull market when most secular bull markets last 15 – 20 years.

At some point the SP 500 will correct 15% – 20% (which won’t even erase 2021’s YTD 26% return) and then true investor sentiment can be gauged.

We could debate this stuff forever. Stay vigilant.

Take everything you read with substantial skepticism. Capital markets can change quickly.

Thanks for reading.

 

1 thought on “Style-Box Update 11/15/21 – Large-Cap Growth Reasserts Itself, But Value Working Too”

  1. Dear Sir,

    Good day to you and I hope this email finds you and yours well.

    1) I agree with your assessment, “At some point the SP 500 will correct 15% – 20% (which won’t even erase 2021’s YTD 26% return) and then true investor sentiment can be gauged.” My view is such a correction would be Mr. Market having a sale.

    2) At this point, I’m selling cash covered naked Puts in the as yet unfulfilled hope the companies I desire to purchase will fall to a price that provides a margin of safety; yes I get paid to do this and my rate of return on these trades exceeds what interest my cash is earning sitting in my brokerage account. For-what-it-is worth, I’ve had limit orders to buy on the dip go unfulfilled because there were not “enough shares available to fill my order per the broker.

    3) “Having to prepare clients for the prospect of bear markets to come in the future, unlike the late 1990’s, it’s tough to find any reasonable value in the United States asset classes, which is not a surprise with a 1.6% 10-year Treasury yield in the US.” See comment one and two supra. Simply stated, historical market evaluations confirm the overall market trend is upward. The questions for us all are, assuming we know what we purchased and why: are we (your clients and the rest of us) willing to stay in the market during corrections and recessions; and, if we have put aside enough dry powder and are we willing to jump in and buy good companies with a margin of safety while the market is adjusting?

    3a) For me I’m fortunate to have purchased a few companies providing significant reserves, e.g. APPL before their last two stock splits. I’m contemplating selling off some of APPL, again, to pay for a few hundred shares of JNJ, GD, or more shares of MMM.

    3b) I’ve no way to know if I’m a lone voice in the wilderness or if your shared information is as important to others as it is to me. Therefore, I ask two things (assuming some or all of my musings are shared): what do your followers, think; about not buying something until it can be purchased with a margin of safety, i.e., at a price below what the buyer has calculated is a value below it’s intrinsic value. Perhaps this is crass, none-the-less, I’ve learned the market does not care when I buy or sell.

    4) My mantra has been, is, and (barring a catastrophe) shall remain, preserve the principal! It is seventeen months until I can retire at sixty eight and change, at this time I am spinning off one third of my retirement income as dividends. Based on your S & P reports and this new goodie, can you offer any other market insights that will permit me to “go quietly into that good night?” Anecdotal and historical evidence is leave one’s investments alone will do better, in the long-term, than an account that is frequently traded. Your thoughts or fellow subscriber responses are desired?

    Respectfully,

    Don

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