July 21, 2021
Today, oil was one of the biggest movers in global markets — up 4.5%, back above $70 a barrel.
And energy stocks were the best performers on the day in the S&P 500, up 3.5% as a sector.
This aligns with the big outperformance of small cap value over the past two days.
As we've discussed here in my notes for the better part of last year, we should expect small caps and value to outperform large caps and growth stocks coming out of recession, and moreover, persistently outperform large caps over the next ten years.
Indeed, that has been the case. From the fourth quarter of last year, through the first quarter of this year, small cap value outperformed large cap growth by the widest margin since World War II.
Coming out of recession, small caps tend to follow the path of interest rates (climbing rates, suggests more optimistic outlook). With that, as interest rates (the 10-year yield) rose from as low as 31 basis points last year, to as high as 1.78% this year, small cap value stocks soared.
And as interest rates have rolled-over the past two months, so have small caps — creating this divergence in the chart below.
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Fast forward to today: As the fear of more restrictive policies surrounding the virus variant seems to be waning, rates are bouncing, and small caps are bouncing. With that, the divergence in the chart above is beginning to close aggressively. This dynamic favors our Billionaire's Portfolio (my premium subscription service). Our small-cap value oriented portfolio has been up as much as 30% this year, before giving back some of that outperformance over the past two months. You can buy the portfolio on a dip by joining us today (details here). Best Regards, |