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January 24, 2025

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In Stocks

Market Internals Point to Large Growth Leadership

4 Mins Read

As the S&P 500 and Nasdaq 100 once again test new all-time highs this week, I’m struck by how leadership trends have shifted around quite a bit since mid-December.  Part of my daily chart process involves a series of ratios to better evaluate and understand which stocks are leading, which stocks are lagging, and from where the next big leadership theme may emerge.

Here are three key ratio charts that I’ve found incredibly valuable in recent years, all derived from my Market Misbehavior LIVE ChartList.  I should also note that the Relative Rotation Graphs remain one of my primary tools to track leadership rotation among the 11 S&P 500 sectors.  I feel that the charts below complement the RRG to provide a more comprehensive picture of rotation among themes and styles.

This first chart hits on perhaps the most important equity market theme in 2024, the dominance of growth over value.  The top panel compares the Russell 1000 Growth vs. Russell 1000 Value ETFs, which pulled back into mid-January before rallying again this week.  

Next we have the S&P 500 Pure Growth and Value ETFs, which ignore stocks like Microsoft Corp. (MSFT) that are “double counted” as they display both growth and value characteristics.  This chart has once again broken to new highs as growth stocks have spiked higher this week.

Finally, we’re charting a ratio of the S&P 500 High Beta and Low Volatility ETFs, which has been steadily trending higher since early September.  This provides another way to demonstrate how higher beta companies, or those that tend to experience stronger movements than the benchmark, have done better than more conservative names that tend to demonstrate less volatility than the benchmark.

Even though strategists, including yours truly, have been speaking of the “return of small caps” for quite some time, this next chart shows that investors are still waiting for that fateful day to arrive.  The Russell 2000 ETF has been underperforming its large cap counterpart fairly consistently over the last two years, and the equal-weighted S&P 500 ETF is close to a new 52-week low relative to the regular cap-weighted S&P 500 ETF.

While conditions appear to be ripe for small caps to outperform, these ratios show how the strength in large caps continues to be a key market theme.  Indeed, for the last 12 months, owning anything but large cap growth stocks most likely did not help your portfolio, with the notable exception of a rare few outperformers.  When in doubt, follow the trend.  And the trend remains favoring large cap stocks.

These next three data series represent what I call “offense vs. defense”, in that they track traditionally offensive sectors like consumer discretionary vs. traditionally defensive sectors like real estate.  With the exception of the bottom data series, showing how hotels have underperformed utilities, this chart shows that investors are still favoring “things you want” over “things you need”.

To put it another way, offense is still winning over defense.

Overall, despite a clearly corrective move at year-end 2024 into early 2025, these equity markets appear to have rotated right back to a growth-led bull market phase.  By consistently reviewing the charts we’ve discussed above, you should be able to better identify shifts in leadership and hopefully take action to better position yourself for what may come next.

For two more bonus ratio charts covering key asset allocation themes, be sure to check out my latest video on the StockCharts TV YouTube channel!

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

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In World news

‘Bomb’ cyclone Storm Éowyn approaches Ireland and parts of UK as schools and public transport shut

3 Mins Read

The United Kingdom and Ireland are bracing for what could be one of the most severe storms seen in years, with authorities shutting schools and warning residents to stay in.

Storm Éowyn, an extratropical “bomb” cyclone that has formed in the North Atlantic and intensified rapidly, is expected to bring gusty winds, heavy rain and some snow to the region.

Met Éireann, the Irish Meteorological Service, has issued red warnings, its highest alert level, for wind for much of the country beginning early Friday, saying that wind gusts could exceed 80 miles per hour.

The UK’s Meteorological Office, or Met Office, has also placed parts of Northern Ireland under red wind warnings for early Friday for the first time since 2011.

“We reserve the issuing of red warnings for the most severe weather which represents a likely danger to life and severe disruption, and that is the case with Storm Éowyn,” the Met Office’s Chief Meteorologist Paul Gundersen said:

Keith Leonard, the chair of Ireland’s National Emergency Coordination Group, said in a statement that “Storm Éowyn is going to be a very dangerous and destructive weather event.”

All schools in both Ireland and Northern Ireland will be closed on Friday, according to the the Irish Department of Education and the Northern Irish Education Authority. Public transport will not be running in Ireland, according to the authorities.

Nicholas Leach, a postdoctoral weather and climate researcher at Oxford University, told the non-profit Science Media Centre that Éowyn was “likely to cause potentially severe damage,” which he said could include flying debris and fallen trees causing “extremely dangerous driving conditions.”

Along with the wind, Éowyn (pronounced “Ay-oh-win”) is expected to bring rain and snow to parts of the UK. A yellow snowfall warning is in place for parts of northern England and southern Scotland. Across Scotland’s central belt, snowfall could reach somewhere between six to ten inches, according to the Met Office.

Ambrogio Volonté, a senior research fellow at the University of Reading’s Department of Meteorology, said Storm Éowyn could “rival the ferocity” of Storm Eunice in 2022 and Storm Ciarán in 2023, “both of which sadly claimed lives and left behind severe damage.”

Éowyn is expected to move away from the UK on Saturday, although yellow wind warnings are in place in the north of the country for Saturday morning and early afternoon.

Leach said Éowyn is an extratropical “bomb” cyclone that has formed in the North Atlantic and “intensified extremely rapidly.”

He said bomb cyclones are typically the most impactful winter storms in Northern Europe.

While Leach said that the impacts of the climate crisis on extratropical cyclones remain uncertain, some studies suggest the strongest storms, like Éowyn is expected to be, may be getting stronger with climate change.

This post appeared first on cnn.com

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In Business

JPMorgan Chase CEO Jamie Dimon on Trump tariffs: ‘Get over it’

3 Mins Read

JPMorgan Chase CEO Jamie Dimon said Wednesday that the looming tariffs that President Donald Trump is expected to slap on U.S. trading partners could be viewed positively.

Despite fears that the duties could spark a global trade war and reignite inflation domestically, the head of the largest U.S. bank by assets said they could protect American interests and bring trading partners back to the table for better deals for the country, if used correctly.

“If it’s a little inflationary, but it’s good for national security, so be it. I mean, get over it,” Dimon told CNBC’s Andrew Ross Sorkin during an interview at the World Economic Forum in Davos. “National security trumps a little bit more inflation.”

Since taking office Monday, Trump has been saber-rattling on tariffs, threatening Monday to impose levies on Mexico and Canada, then expanding the scope Tuesday to China and the European Union. The president told reporters that the E.U. is treating the U.S. “very, very badly” due to its large annual trade surplus. The U.S. last year ran a $214 billion deficit with the E.U. through November 2024.

Among the considerations are a 10% tariff on China and 25% on Canada and Mexico as the U.S. looks forward to a review on the tri-party agreement Trump negotiated during his first term. The U.S.-Mexico-Canada Trade Agreement is up for review in July 2026.

Dimon did not get into the details of Trump’s plans, but said it depends on how the duties are implemented. Trump has indicated the tariffs could take effect Feb. 1.

“I look at tariffs, they’re an economic tool, That’s it,” Dimon said. “They’re an economic weapon, depending on how you use it, why you use it, stuff like that. Tariffs are inflationary and not inflationary.”

Trump leveled broad-based tariffs during his first term, during which inflation ran below 2.5% each year. Despite the looming tariff threat, the U.S. dollar has drifted lower this week.

“Tariffs can change the dollar, but the most important thing is growth,” Dimon said.

Dimon wasn’t the only Wall Street CEO to speak of tariffs in a positive light.

Goldman Sachs CEO David Solomon, also speaking to CNBC from Davos, said business leaders have been preparing for shifts in policy, including on trade issues.

“I think it turns into a rebalancing of certain trade agreements over time. I think that rebalancing can be constructive for U.S. growth if it’s handled right,” Solomon said. “The question is, how quickly, how thoughtfully. Some of this is negotiating tactics for things over than simply trade.”

“Used appropriately, it can be constructive,” he added. “This is going to unfold over the course of the year, and we have to watch it closely.”

This post appeared first on NBC NEWS

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