Our Ratio of Ratios has bounced between premium and discount for Small Cap stocks the last few months. Keep in mind that both the S&P 500 and the S&P 600 made new multi-year LTM P/E ratio highs in March.
Not a lot of month-over-month action for the S&P 500. But, on March 21st, the index finished down 1.24% putting an end to a run of 110 trading days without a decline greater than 1%—the longest such stretch in 22 years.
Looking back at January’s robust “one-month” figure (2.07), the current result is disappointing. It was towering 13% above the long-term “one-month” average in January and now sits looking up at the historical “two-month” mean.
After a 2016 year-end spike, our Ratio of Ratios has settled down below its 3% long-term median premium. Large Caps have experienced additional numerator expansion in 2017, with the S&P 500 up 6% versus the Russell 2000 2.3% gain.
The S&P 500 had a very relaxing and enjoyable February in the Keys. Aside from a regrettable lower-back tattoo, the index basked in a combination of easy gains, virtually no significant down days, and historically low volatility.