July Market Update

Written by Alex Shen, CFA and Andy Pratt on .

After taking a one-month break, Large Growth stocks continued their year-to-date outperformance in July, returning 2.6% on the month and 16% so far on the year.  To put that into perspective, the lowest performing Size and Style market segment is Small Value which gained 0.7% in July and only 1.6% so far in 2017.

Interestingly, this is a 180-degree change from 2016 when Large Growth stocks were the worst performers and Small Value stocks the best, highlighting the dangers in short-term performance chasing.

2016 vs 2017 SS

Small Value stocks were the best performers last year but are the worst performers this year

That said, there is a long-term cyclical element to Size and Style that will put one corner in favor for long periods of time as Size cycles last 3-6 years and Style cycles 18-30 months on average. We are cautious before changing our Size & Style Strategy, needing to see multiple months of momentum one way or the other as well as fundamental data supporting our move before making a change, but based on the evidence over the past 7 months, we are confident in calling for a change from a pro-Value period to a pro-Growth period and are shifting our Style weights towards growth. It is likely we are about halfway through a Growth phase and expect Growth to remain in favor over the next 12 months.

Rolling Size Cycle

There is no clearly established momentum to make a Size bet.

20170731 Rolling Style Cycle

The chart above shows that we are about halfway through a Growth phase that started the beginning of this year.

Looking at the sectors, every one was positive in July, something that is not very common and indicative of the overall lack of volatility in the market. Information Technology stocks bounced back strongly from their June decline and extended the sector’s year-to-date lead over the other sectors. Energy finally advanced though is still down 10% on the year. Healthcare, Consumer Discretionary, Materials and Utilities are among the highest gainers with double digit returns year-to-date.

Sector Returns 20170717