Market Briefing

  • February 8, 2021

February 2021

Equities turned in mixed price performance in January with small capitalization stocks outperforming mid and large caps. The tumultuous political events early in the month had surprisingly little effect on equity markets. However, comments from the FOMC signaling a slowing economic recovery and worries over the pace of COVID vaccinations weighed heavily on the markets late in the month. Despite that, economic headlines in January were mixed. ISM manufacturing and non-manufacturing index reports for December were both above estimates. The housing sector also continued its strong pace. However, employment figures and retail sales reports were disappointing. Investors favored momentum stocks during the month with price momentum, earnings trend and earnings surprise among the top performing stock selection factors. Earnings surprise, earnings trend, projected growth rate and earnings momentum were the top performing factors for the month. High quality, large cap stocks continued to underperform. Likewise, high dividend yield and dividend growth stocks had relatively weak returns for a second month. Although overall market returns were mixed, more than half of the industry groups we cover had positive average price gains for the month. Some outsized gains in individual issues skewed the averages of some industry groups. Some of the best performing groups included retail and apparel, the oil sector and medical related industries. The weakest performing groups were concentrated in the transportation and materials sectors.

Value of the Market

The S&P 500 index declined 1.1% in January. The price drop countered by higher interest rates caused the aggregate PVA for the index to end higher for the month. Based on current earnings, expected growth, and current interest rates, the aggregate pva for the S&P 500 remains below the 1.0 fair value level. However, the aggregate price to intrinsic value is now above its 10-year average level.
The S&P Midcap 400 Index rose 1.5% in January. The higher index value combined with higher long term interest rates caused the aggregate price to intrinsic value for the index to rise for the month. Based on current earnings, expected growth, and current interest rates, the S&P Midcap 400 Index is below the 1.0 fairly valued PVA level.  However, the average PVA for the index is above its mean level of the last 10 years.
The Smallcap 600 Index increased by 6.2% in January. The price rise combined with higher long term interest rates caused the aggregate price to intrinsic value for the Smallcap 600 index to end higher for the month. Based on current earnings, expected growth, and current interest rates, the S&P Smallcap 600 Index is below the 1.0 fairly valued level. However the aggregate index PVA is above its 10-year average level. 

Source: Ford Equity Research