• Small Caps Pain: According to a recent BofA Research survey, fund managers are decreasing their investments in small caps. Small caps, which were viewed as beneficiaries of the “reopening” and “reflation” narratives have actually underperformed the market this year by 4.7%. This underperformance seems to be continuing as the small cap index (Russell 2000) has underperformed the S&P500 in each of the last four months.
• To the Moon: The “easy money” environment is starting impact the private markets as well. A billion dollar valuation for a company (a “unicorn”) used to be a rare feat. Last quarter there were 136 new companies that attained a billion dollar valuation, which is 167% more companies than the last quarterly record. Furthermore, 1 out of every 5 venture dollars during the last quarter was invested into the fintech sector, foreshadowing significant innovation in the future.
• To the Moon Take Two - The stock market has hit a new all time high 321 times since 2007. During those days when the market hit an all-time high, 75.6% of all stocks were above their 50-day moving average. There had never been a time since the early 2000’s when the stock market achieved an all time high with fewer that 50% of all stock above their 50-day moving average. Last month, however, this happened four times. This shows that the market’s growth is increasingly being led by fewer companies.
• Quasi-Inflation? Typically, as inflation rises, bond yields also rise. In our current inflationary environment, the 10-year treasury yield actually dropped from 1.77% earlier this year to 1.30%. This counterintuitive movement occurred because 1) Investors believe that the majority of price increases are temporary 2) The percentage of individuals that believe that now is a good time to buy a household item fell to its lowest level since last April, indicating that consumption (and inflation) is not as robust as earlier thought, and 3) foreign investors’ strong appetite for treasuries continues to keep yields low.