Investment Commentary & Outlook - July 30, 2018

Our growth and dividend stocks have been oscillating with the overall stock market recently, but we expect that one by one, as they post better than expected second- quarter sales and earnings that operational performance may translate in better price action. The following table from our friends at Bespoke shows what has been working for the first six months of 2018 in the S&P 500 when broken into deciles:

DecilePerformance.png

What’s more intriguing, the best performing stocks in the S&P 500 in the first 6 months of 2018 were:

  1. Bottom 10% of Market Cap, up 7.43%, which demonstrates the small to mid cap strength caused by a
    strong U.S. dollar;
  2. Top 10% with highest P/E ratio, up 9.48%, which demonstrates FAANG strength & short covering;
  3. Bottom 10% of dividend yield, up 9.88%, which also demonstrates FAANG strength & short covering;
  4. Top 10% of Short Interest, up 9.28%, which demonstrates short covering.

Overall, the small-to-mid capitalization rally this year is real and should persist due to a strong U.S. dollar, since it diverts money away from multinationals that are now fighting a currency headwind. However, this year’s short covering rally is hard to capitalize on and is unlikely to be sustained. If the trade friction with China is resolved this fall, money should flow . . . read more

Download the Market Outlook Letter — July 30, 2018