Large caps are expensive and Small caps are actually cheaper

One thing I’ve been looking at is the differences/similarities in 2016 vs now — as I commented earlier, it seems a lot of folk are focused on the 2016 election of Trump and the subsequent rally in stocks and concluding something like “this is how stocks usually trade under Trump” (i.e. that one time).

But aside from the small sample size, there’s a few key issues; specifically, the background context and starting point in terms of valuation and sentiment is entirely different this time. Case in point below. $.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $.DJI(.DJI)$

The hurdle is very high for large caps (PE10 valuation ratio is near-double that of 2016). Though interestingly, echoing my previous observations; small caps are actually cheaper now vs back then… so there is an absolute + relative value case for them. But that large cap PE10 is kind of concerning, a few things need to really go right for large caps to keep chugging-on from here.

I looked a few other key charts (credit spreads, sentiment, equity risk premium, relative value, etc) on this theme in my latest weekly report over at Topdown Charts Professional

I’ve decided to share that report as a one-off free look because I think it’s quite telling, with important implications (…and a good chance to give an insight into what I do with my day job, especially as annual research budget reviews are kicking off for many fund managers: it could be worth a look! :-)