May 2, 2025
As the S&P 500 makes its most sustained attempt at a bullish reversal since prices began correcting in March, we review our suite of factor funds. Rhetoric on global trade has shifted to conciliation among most global trading blocs. The Trump Administration has focused on China as their principle adversary in this international tussle, and we will be looking to see what deleterious effects develop from an increasingly adversarial relationshiop between the two.
Growth vs. Value
We set our bullish reversal lines in the sand a month ago on the thesis that recover would be accompanied by Growth stock outperformance. The chart below shows Large and Mega. Cap Value v.s Growth. Growth improved at the end of April and is now trading into a bullish reversal pattern in May while Value is breaking down towards new multi-month lows. Correlation continues to be sharply negative between the two series.
Small/Mid Growth vs. Value
Small and Mid Growth/Value indices are bifurcating around size. Russell MidCap style benchmarks are separating positively with MidCap Growth now the YTD leader in that group on performance. Russell 2000 style benchmarks are trading lower vs. the broad market Russell 3000 Index.
Momentum, High Beta, Low Vol.
High-beta vs. Low Vol. is showing a similar dynamic to Growth vs. Value as the former should be expected to outperform in a recovery. Momentum as proxied by the iShares MSCI USA Momentum ETF (MTUM) has been resilient this year and is out to new YTD highs relative to the S&P 500 as we start May.
A look under the hood at the top holdings within MTUM shows WMT, COST and PM propping up momentum factor results during the correction. Mag7 continues to be well represented among constituents, but we’re interest to see how the aformentioned staples names fare if risk appetite continues to rebound.
MTUM Top 20 Holdings
Risk-on/Risk-off Indicators
Our proxy risk ratios are firming to varying degrees in the near-term with the SOX Index trying to punch through April highs to register a bullish reversal. Volatility in both the bond and stock market are receding since both series peaked in early April. Continued firming supports a recovery narrative for equities.
Conclusion
A constructive pivot to trade war rhetoric after menacing comments to start April have put a floor under equity prices. Investors are now beginning to speculate on a more sustained recovery as evidence by nascent accumulation in higher beta and Growth exposures. We want to see more of this along with the S&P 500 attaining our next confirmation threshold for the bullish reversal at 5786.
Data sourced from FactSet Research Systems Inc.
