Chart of the Week - Small Cap Valuations
This week we covered: Global Recession Watch, Value vs Growth, Small vs Large, Global Small Value vs Large Growth, "When EM", US Treasuries, Banking Sector, Global PMI.
This email gives you a look at what was in the latest Weekly Insights report — which is part of our entry-level service: summarizing the key points, ideas and charts from our institutional research service.
Chart of the Week - Big Value in Small Caps?
Small Cap Equity PE10 Valuations: US small cap stocks have experienced a decent reset in valuations, with the S&P 600 (small cap index) PE10 ratio dropping almost -40% from the peak.
The S&P 600 PE10 ratio (price vs trailing 10yr average earnings) is sitting about 10% below the average of the past 25 years, and is trading at a discount of -10% vs the S&P 100 (which compares to an long-term average premium of +5%).
So I would say yes there is value in small caps, but probably small value…
It should be noted that as things stand, the S&P 600 is still trading materially higher than the 2003, 2009, 2020 lows — and with global equities still in an entrenched bear market and the Fed still pushing hard on tightening, there is every possibility that “cheap“ gets cheaper still.
But aside from the PE10 ratio, a number of other measures of relative value we look at are also tracking well below average for small caps vs large caps, so there are pockets of outright value and relative value emerging as the bear market progresses.
Key point: US Small Caps are starting to look cheap.
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Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and took a bite out of some really important macro/asset allocation issues right now:
Global Recession Watch: update on recession signals, growth pulse.
Value vs Growth: considering whether *the* turning point is in.
Small vs Large: cautiously optimistic as puzzle pieces fall into place.
Global Small Value? interesting cross section; small value vs large growth.
When EM: answering the question (value, sentiment, macro, technicals).
US Treasuries: yields continue to push higher - testing resistance.
Banks Sector: update on relative performance in banking sector.
Global PMI: a curious/furious PMI indicator chart.
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