Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Smalls Signal An End To The Growth/Value Countertrend
One of the main themes we’ve seen unfold as the market has rallied off its recovery lows from last year is the rotation into value stocks and more cyclical areas of equity markets. We’re seeing it around the world too, and it’s also responsible for driving many other relative trends like that between small and large-caps and US vs ex-US equities.
Our line in the sand for the value over growth thesis to remain intact is 1.70 in the large-cap ratio (IWF/IWD). It’s that simple. And price has been trapped below it ever since breaking down earlier this year. Additionally, we’re also eyeing Tech vs Financials as well as the small-cap growth vs value ratio for confirmation of what we’re seeing from large-caps. Both collapsed lower to end the week. Not only are they beneath the levels we’ve been watching (3.70 in XLK/XLF and 1.90 in IWO/IWN), but they also just took out their year-to-date pivot lows and are now at their lowest level since early 2020. We think it’s only a matter of time until the big-caps follow. The market continues to confirm our thesis of outperformance from value, so that's where we want to continue to lean to express our bullish thesis on equities.
Here is a look at the IWO/IWN ratio with the large-cap ratio overlaid above it:
