Bear Markets are a Choice

JC Parets
October 27, 2022

There are stocks going up and there are stocks going down.

I'm old enough to remember when we would all call that normal.

The going up category just got longer recently. Remember Energy had been the only Sector Index above its 200 day moving average.

Healthcare is now also on that list.

Industrials and Consumer Staples are the next closest ones.

This morning we talked about how poorly the Tech heavy Emerging Markets were doing vs those like Brazil, Saudi Arabia and Indonesia, that have a much different composition.

The difference in performance is off the charts.

There are big winners and big losers.

Another big loser driving headlines is in Large-cap Growth. Stocks like Google and Facebook got crushed after earnings. And now Amazon is joining that list after the bell Thursday.

But that's specifically Large-cap Growth.

Small-cap Growth, on the other hand, is holding up way better.

You can see here how Small-cap Growth is hitting the highest levels of the year relative to Large-cap Growth:

And while this chart is definitely sexy and tells an interesting story.

The real juice is when you look inside.

It's not just the market capitalization differences, the sector exposure between Large-cap Growth and Small-cap Growth is night and day.

For instance, Technology is only 20% of Small-cap Growth vs the 40% in Large-caps.

Industrials only represent 7% of the Large-cap Growth Index, but over 16% in Small-caps.

Energy is 6% in Small-caps vs 1% in Large-caps.

Healthcare is 25% in Small-caps but just 12% in Large-caps.

Small-caps have 4x the exposure to Materials and just 1/3 of the exposure to Communications when compared to Large-caps.

These are huge differences and it shows in the performance of the indexes.

You can see the relative strength and sector rotation underneath the surface. We talk about it here every day.

Take a look at what stocks that aren't large-caps have done since the new 52-week lows list peaked in June:

But it's not just that they're not large-caps. It's that they have much more exposure to the winning sectors and less exposure to the losers.

See the difference?

So like I said, Bear Markets seem to be a choice these days.

How is it not?

Shoot over your thoughts!

- JC

 

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