Small-cap Growth pushes back vs. Value to new highs for 2024

Equities have extended gains and remain in new short-term bullish uptrends as part of intermediate-term uptrends which never wavered during the recent three-week decline.  While more evidence of falling Yields and US Dollar is likely beginning in the days/weeks ahead, it’s likely that the recent uptick in Healthcare, Financials and Industrials are constructive factors for this market technically and should help it broaden out.  Moreover, Small and Mid-cap styles have come back to life over the last week and this recovery is also important despite it being in its infancy.  Overall, I expect that SPX has begun its trek back to late March highs at 5264.85 and should exceed this en-route to 5400.

US Equities are starting to look much more appealing again on a broad-based nature given the comeback of several former groups which had been hard hit during the selloff this past March.

In yesterday’s report I discussed the comeback in Semiconductor issues Transportation stocks, Emerging market and Biotechnology names along with some mean reversion in Solar Energy and Homebuilding issues as rates have drifted lower.   This looks to be an ongoing theme given the start of rates dropping over the last week, and all of these groups have technical appeal as a “catch-up” trade between now and August.  (Those who missed Tuesday’s report (5/7/24) should reference Tuesday’s Technical missive for more information.)

As of today, the brief stalling out doesn’t look too important, as minor consolidation following a  3.3% rally in the last four trading sessions is quite normal. 

As daily SPX charts show below the breakout of late April peaks accelerated back up to near 5200 and recent churning should prove temporary before a push up to 5265 initially.    Any further downside arguably should prove temporary and should not breach 5123.49 before heading back to the highs from late March 2024.

S&P 500

Small-cap Growth vs. Value has pushed back to new 2024 highs

We’ve heard a lot of recent chatter about Value having come back, but is this true?

The recent discussion about Value’s appeal is largely a Large-cap discussion, but when looking at both Small and Mid-Caps, growth remains pointed higher vs. Value.

This ratio chart of Growth vs. Value when using S&P’s Small-cap Growth vs. Small-cap Value ETF has just broken back out to new highs for 2024 over the last week.

Mid-cap Growth has stalled out a bit, but has made little to no progress in either direction over the last few months. Therefore it’s not been wrong to be in either Growth or Value, but certainly this hasn’t been a huge time for Value outperformance.

Large-cap Growth did show some deterioration vs. Value from February into April.  However, this has now begun to come back and doesn’t support the notion that Value has begun any sort of meaningful period of outperformance.

Overall, when examining Large-cap, Mid-cap and Small-cap ratios of Growth vs. Value it remains hard to make the case that Value is preferred for outperformance in 2024.

Small-cap 600 Growth vs. Value (in ratio form) below shows that Growth remains the better Style to favor for relative strength in the weeks and months to come.

Small-Cap Growth vs. Value

Dow Jones Transportation Average recovering former lows is a very constructive sign

One of the leading sectors to always pay close attention to revolves around Transportation Stocks and in particular, the Dow Jones Transportation Average, which many use for confirmation purposes to have faith in a market move back to new highs being sustainable.

I had mentioned the Dow Jones Transportation Average last month as a particular sign of concern given that price had undercut prior lows to reach the lowest levels since Fall 2023.

However, this recent weakness looks to have reversed course coinciding with signs of interest rates starting to recede.

Overall, the ability to have pushed back higher to regain the former consolidation that had been broken is seen as a very good sign, technically speaking.  Other leading groups like Semiconductors and Homebuilders have also begun to perk up a bit and give some reason for optimism.

I expect that the DJ Transportation Avg. should rally back to $16,200 which would lead this eventually to push back to new highs for 2024.  However, at present, it’s just worthwhile to mention that this key market gauge has recovered most of its technical damage since late April.

Dow Jones Transportation Average

European Financials comeback has been impressive, but likely could peak out into Summer

European Financials have shown an excellent start to 2024 given the group’s strength to the highest levels in nearly two years.

EUFN 0.75% , as an ETF guide for European Financials, has just exceeded 2021 peaks in the last month which brings this to the highest levels since 2018.

This is a good technical sign that likely allows for a bit more strength in the weeks to come.

Upside targets lie near $26 and would be an area to consider taking profits on rallies following a nearly 50% rally from 2022. 

In the last month, European Financials have shown more strength than US Financials, which looks to be a short-term phenomenon only but also could extend for another 2-3 months before starting to reverse course.

At present with UKX DAX 0.17% , CAC 0.24% -40 and STOXX-600 having all pushed back to new all-time highs, it is no surprise that European Banks have been showing excellent strength.

At present I feel this move is in its 7^th inning but see no reason to doubt this push to new yearly highs just yet.  Most cycles and counter-trend exhaustion signals suggest it might still be a bit early to fade this move.

Europe Financials Ishares