Market Strategy 8/30/2021
We Can Work it Out
This week a slew of economic data is scheduled culminating on Friday with the jobs numbers for August.
Key Takeaways
- The S&P 600 small caps have outperformed the S&P 500, the S&P 400 (mid caps), the Dow Jones Industrials, the Nasdaq Composite and the Russell 2000 (small caps) since the start of the year on both a price and total return basis. This in our view usually points towards a sustainable US economic expansion on the horizon.
- Growth stocks since mid-May continue to outperform value stocks across all market capitalizations. This suggests to us a broadening in investor appetite for equity investments and diversification among equities.
- Data on durable goods core shipments last week suggest that business fixed investment demand is off to a robust start in Q3 even as personal consumption demand softened.
Fed Chair Jerome Powell’s remarks from the Kansas City Fed’s Jackson Hole symposium (held virtually this year) along with economic data released last week that reflected resilience in the US economy countered heightened concerns about geopolitical events, domestic politics, as well as COVID-19 variant risks to find the S&P 500 and the NASDAQ closing at their latest highs last Friday.
On the week the Dow Jones Industrials, the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small-caps), the Russell 2000 (small caps) and the NASDAQ Composite (some 40% weighted in tech and tech-related stocks) closed respectively higher by: 1.61%, 2.35%, 4.63%, 5.73%, 6.79% and 4.04%.
The S&P 600 (small caps) and the S&P 400 (mid-caps) outperformed the large cap indices with the broadest tracker of small cap stocks (the Russell 2000) the overall best performer on the week.
We’d note that the S&P 600, an index of what’s considered by many investors as a better quality basket of small caps, has been too often overlooked this year. In fact it’s been the outperforming benchmark for most if not all of this year against all other five major indices and has maintained its leadership among all six indices for closing up 22.89% for the year-to-date period versus up 15.84%, 20.06%, 19.96%, 15.31% and 17.39% respectively for the Dow Jones Industrials, the S&P 500, The S&P 400, the Russell 2000 and the NASDQ Composite in the same period.
Such broad distribution of outperformance year to date and in the week just ended across market capitalizations supports, in our view, (notwithstanding near-term excitement by traders and other short-term investors on back of comments by the Fed chair on Friday) that indeed an economic recovery followed by a sustainable economic expansion stateside is becoming increasingly likely so long as the spread of COVID-19 and its variants can be stemmed, the Federal Reserve continues to have success in managing the economic recovery and politicians in Washington can curb their enthusiasm for big spending and avoid overstimulating an economy that has managed well with what it has already been given thus far by the Fed, Congress and two Administrations.
Time will tell soon enough.
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