Neutral Economic Outlook

Investing Environment Review and Outlook – Volume 83

Conditions for equities like long equity investor positioning and low equity volatility reflect investor optimism. While somewhat of a risk, we are a long way from the speculation evident in 2021 which preceded the 2022 bear market. While technology stocks are overbought after a strong run, they are backed by fundamentals like record cash flow and earnings. This month we look at the Russell 2000 of small capitalization stocks.

Russell 2000 vs. S&P 500 Divergence

The divergence of the S&P 500 and the Russell 2000 Small Cap Index is one way to quantify the widely quoted “narrow” market this year. For instance, YTD the S&P 500 is up 15% while the Russell 2000 of small cap companies is down 0.5%. Since 1980 there were several periods like this. However, since they persisted for up to 5 years, it was never a practical signal for markets. In the last 3.5 years since 2021, the S&P 500 is up 45% vs. just 2% for the Russell 2000. We have not found this type of divergence to be predictive of the S&P 500 or the economy. Given the extreme move, a reversion to the mean is more likely at some point, as small stocks will likely outperform large stocks. The last big move to the upside for small cap stocks was from 1999 to 2006. Over that 7-year period most investors have probably forgotten that the S&P 500 returned just 15% while the Russell 2000 of small stocks returned 86%.

Conditions for equities remain positive, although the commodities outlook was downgraded based on the neutral economic outlook. We will continue to watch our indicators on a daily basis and shift exposures as needed. Thank you for your support and please contact us with any questions.

 

IMPORTANT DISCLOSURES

This review and outlook report (this “Report”) is for informational, illustration and discussion purposes only and is not intended to be, nor should it be construed as, financial, legal, tax or investment advice, of Brenton Point Wealth Advisors LLC or any of its affiliates (“Brenton Point”). This Report does not take into account the investment objectives, financial situation, restrictions, particular needs or financial, legal or tax situation of any particular person and should not be viewed as addressing any recipient’s particular investment needs. Recipients should consider the information contained in this Report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments.
This material is based upon information obtained from various sources that Brenton Point believes to be reliable, but Brenton Point makes no representation or warranty with respect to the accuracy or completeness of such information. Views expressed herein are current only as of the date indicated and are subject to change without notice.
This Report contains certain forward looking statements opinions, estimates, projections, assessments and other views (collectively “Statements”). These Statements are subject to a number of assumptions, risks and uncertainties which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward looking statements and projections. Brenton Point makes no representations as to the reasonableness of such assumptions or the likelihood that such assumptions will coincide with actual events and this information should not be relied upon for that purpose. Changes in such assumptions could produce materially different results. Past performance is not a guarantee or indication of future results, and no representation or warranty, express or implied, is made regarding future performance of any financial instrument mentioned in this Report.
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Source of data and performance statistics: Bloomberg L.P. and Factset Research Systems Inc.
©Brenton Point Wealth Advisors LLC 2024

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