Market Briefing

  • March 5, 2021

March 2021

Stock prices were moderately higher, on average, in February. Small capitalization stocks continued their recent outperformance over mid and large cap stocks. Economic news for the month was mostly positive with expansion indicated by manufacturing and non-manufacturing measures. Factory orders and durable goods orders were higher. Retail sales for January were particularly robust. New and existing home sales reports both showed increases. Earnings reporting season was in full swing and a high proportion of companies reported results that exceeded analyst estimates. Despite a moderate CPI report for January, rising energy and other commodity prices along with rising treasury yields and the likely passage of an additional fiscal stimulus package had investors becoming concerned that inflation is on the horizon. This had the effect to drive stock prices down at the end of the month. Investors favored smaller capitalization, value stocks during the month with price/book value, price/cash flow, price/sales and normal p/e ratio among the top performing stock selection factors. High quality, large cap growth stocks were out of favor in February. Estimated growth rate, price momentum and earnings and sales growth rates were among the weakest performing measures. Nearly all the industry groups we cover had positive average price gains for the month. Groups that are benefiting to reopening of the economy and the oil sector were top performers for the month. Food and beverage and household products were among the weaker industry groups in February.

Value of the Market

The S&P 500 index advanced 2.6% in February. The price rise along with higher interest rates caused the aggregate PVA for the index to end higher for the month. Based on current earnings, expected growth, and current interest rates, the aggregate pva for the S&P 500 remains below the 1.0 fair value level. However, the aggregate price to intrinsic value is above its 10-year average level.
The S&P Midcap 400 Index rose 6.7% in February. The higher index value combined with higher long term interest rates caused the aggregate price to intrinsic value for the index to rise for the month. Based on current earnings, expected growth, and current interest rates, the S&P Midcap 400 Index is below the 1.0 fairly valued PVA level.  However, the average PVA for the index is above its mean level of the last 10 years.
The Smallcap 600 Index increased by 7.6% in February. The price rise combined with higher long term interest rates caused the aggregate price to intrinsic value for the Smallcap 600 index to end higher for the month. Based on current earnings, expected growth, and current interest rates, the S&P Smallcap 600 Index is above the 1.0 fairly valued level. In addition, the aggregate index PVA is above its 10-year average level. 

Source: Ford Equity Research