Showing posts with label Large Cap stocks. Show all posts
Showing posts with label Large Cap stocks. Show all posts

Thursday, August 20, 2020

20/8/20: All Markets are Now Monetized

 

While the economy burns, the stock markets are literally going bonkers. Here are the main implied volatility options:

Which are symmetric, in so far as they treat volatility as symmetrically-valued to the upside and downside. And here is another way of looking at the same concept via repricing speed, or the rate of change in actual P/E ratios of S&P500 over longer time horizons, in this case: 20 weeks running P/E ratios change:

Source of the chart is @longvieweconomics. What does the above show? We have S&P500 at an all-time high. S&P500's PE ratio (PER) is only slightly below the 2000 peak. And, we have the fastest rate of S&P over-valuation increase in history - full 85 percentage points trough to peak. Both, the fundamentals and the momentum of their deterioration are absolutely out of control. Of course, this is just the stocks. One must never mention the massive bubble blown up by the Fed in the bonds markets. 

The 20-weeks moving change in weekly yields for Aaa-rated bonds maxed out at historical high of -44.06% (remember, lower yields = higher prices) in the week of July 31st this year. Top three historically highest rates of change took place in the three weeks of July 24th-August 7 this year. Overall range of bonds repricing is in the range of 60 percentage points in the current cycle:

This is plain horrendous: there is nothing in the macro and micro fundamentals that can warrant these changes. Except for the expectation of continued monetary accommodation of the Wall Street into the infinitely long future. 


Thursday, February 4, 2016

4/2/16: Smal v Large Cap Stocks: Recession Cycle Performance


Credit Suisse did an interesting exercise recently in a note to clients. They took U.S. equities indices for large cap (S&P500) and small cap (Russell 2000) stocks and computed an average downside to each index across all U.S. recessions from 1980 on and then to the upside from the post-recession trough. The episodes averaged over are: 1980, 1981-1982, 1990-1991, 2001, and 2007-2009. As a caution, there is no survivorship bias (index composition risk) adjustment to the resulting data.

So per CS: “Measuring the average peak-to-trough performance of the Russell 2000 and S&P 500 from one year before the start of each recession to the end of the downturn, the bank found that large caps were more resilient than small caps across the five slumps: the S&P 500 fell by an average of 32 percent, while the Russell 2000 dropped 37 percent. But it was a different story on the way back up. The Russell 2000 averaged returns of 86 percent from the start of each recession to one year after its end, while the S&P 500 posted returns of just 51 percent.”

So over the part of the cycle covered by CS, Russell 2000 was up, net, 17 percent, while S&P was up, net, only 3%.