Are the recent trade disputes the reason USA markets are “disappointing” investors? Why are investors saying they are disappointed? We are not sure really. As of Friday the total market is up 6.2% this year which is not far off of the long term average and very close to our estimate for 2018. Are the disappointments more in terms of what people thought could be obtained in 2018? This appears more likely. See the full report in Client Service > World Markets > Americas > USA Stock Consideration Report
Of the three major market capitalization categories SmallCap has advanced the most by adding 5.22 points to reach a positive 3.42% return after seeing red most of the year. MidCap has also added 2.47 points to put its head above breakeven at 0.44%.
After a nice rationale correction in February, the market decided to continue into March on the same objective. LargeCap stocks have repositioned themselves better and remain well in fair value range at 115.3% a drop of just over 1 percentage point. MidCap stocks have moved well below their previous cautionary levels to 119.0% Fv. This is a welcome drop of over 6 points back into fair value range. MidCap also retreated away from caution and now sits within fair value at 116.2% Fv. This was a drop of 6.1 points. All three market capitalization categories are now back within fair value. These relative valuations are closer to a normal market.
In the most recent Snap-Shot we discussed the move away from overvaluation in MidCap stocks and the increase in overall relative valuation in LargeCap stocks. This directional change has continued with MidCap moving back to 125.5% Fv, a reduction of 4.4 percentage points from our January Considerations Brief. LargeCap has advanced to 116.7% Fv a gain of 3.4 percentage points over the same time period. SmallCap has remained basically unchanged at 122.3% Fv. This movement is welcomed, especially given the corrective environment taking place at the end of last week and early this morning. World markets have joined the U.S. posting major drops in market valuations with the only exception being China.
Expectations for SmallCap stocks advanced the most since our last report on 1 November adding 3.5 Fv points reaching 115.3% Fv. Returns for the market classification are also improved and now stand at a gain of 10.6% for the year so far. Earlier in the year SmallCap struggled just to get into positive territory. This is an improvement of nearly 4% from earlier this month. LargeCap remains the leader at 16.2% for the year which is more than double the long-term average of 7%. Valuations remain reasonable at just 7.2 Fv points above 100% fair value. This is well within the normal fair value range, but is an increase of 1.2 Fv points in three weeks. We could easily experience a slight pause in gains as reality catches up to expectations.