Summary
Interesting insights can be made while looking at broader market performance comparisons.
As major trends are slow to change, these insights can be used to find returns into early 2022 and beyond.
While some strong points can be made using the data, factors for each individual holding you own may be more influential overall, so do your due diligence.
TriggerPhoto/iStock Unreleased via Getty Images Charts really are the ‘footprint of money’ – Fred McAllen Introduction and Summary
Significant trends in the market can be easily seen when comparing sectors against each other. I will be showing many charts in this article, and it will be important to be able to read them correctly. When comparing two funds, the initial stock is outperforming if there is a positively sloping trend line, and underperforming if there is a negative slope. When both funds are seeing similar performance, the trend line will be flat overall. If looking at long time periods, it becomes slightly more difficult to see the trend, but I will do my best to describe each chart in the captions. Please feel free to comment on any questions or concerns below if necessary.
2021 was an interesting year for broad sector analysis, and some trends were bucked for a majority of the year. It is not surprising, however, when considering the incredible outperformance by growth sectors in 2020. Although, by the latter half of the year, growth returned to form, and one particular sector of the market was the main influence in the all-time highs reached of late.
At the moment, there is a huge disparity in the performance between Large Cap Growth and the rest of the market, and this may have an undue influence on returns through 2022 and beyond. While individual stock performance plays the majority part in long-term shareholder success, short- and long-term trend insights may help you stay steady and make smart decisions during these difficult and volatile periods. Chart 1: There are two major headlines that describe the markets in 2021, first, the strong rotation from growth to value in the first half of the year, and the return to the overall trend of Large Cap Growth domination at the end of the year. Chart 2: This chart is useful for a quick primer on using comparative charts to determine market trends. The green solid line indicates a long period of time where RSP outperformed SPY, whereas the red line indicates a long period of underperformance. The dotted red and green lines indicate points where short-term countertrends are formed. We can also determine that with Equal Weight underperformance, only a small section of the market is propelling most SPY growth to higher levels, rather than the majority of the market moving up as a group. This is the influence from the Large Cap Growth companies far outperforming the other sectors, as shown in Chart 1. Large Cap Growth is Carrying The Market
The perhaps obvious and primary insight we can see utilizing various charts is the fact that Large Cap Growth is carrying the S&P 500. This trend has been in place since the Dot Com Crash period between 2000 and 2008. Ever since, Growth has held the reins of the S&P 500, and the trend has grown even stronger in 2020 and 2021. However, a quick rotation to value in early 2021 has demolished most Growth names, especially for Mid Cap and smaller companies. The top 5 or so companies in the S&P are the primary influence now for the overall index, and this momentum seems unlikely to cease anytime soon. Reasons for this include the overall quality of these companies as being seen as a hedge against inflation, the relative valuations of some of these names being quite fair, and strong performance of late hinting at continued growth despite huge size. Chart 3: The disparity between growth and the broader S&P 500 has reached a significant point, but no end to this trend is in sight. Of note, however, is the strong rotation from growth in early 2021, highlighted with the green trend line. Chart 4: Value has seen relative underperformance since even before the financial crisis (green trend line). After the incredible overvaluation of the Dot-com bubble, Value saw a period of outperformance (red trend line). 2021 seemed like a shift toward Value, but the P/Es of the Large Cap growth companies remain fair, and Small to Mid Cap names are way off their highs. Mid Cap Growth
Mid Cap Growth […]
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