Stock market bears have been on the wrong side of the equity market all year. The bearish narratives have ranged from the stock market's seemingly expensive valuation to a growth slowdown that never came. The fundamental takeaway for all investors is that when U.S. growth is accelerating "expensive" stocks get more expensive.
So what's working in 2017?
1. Tech Winning, Energy Losing
Breaking down S&P 500 performance, top performing sector Tech (XLK) is up +31.3% year-to-date versus +15.5% for the S&P 500. This makes sense since Tech stocks are most tethered to an economic rebound and increasing consumer spending. At the bottom of the sector pack is Energy (XLE) -8.8% this year, which was particularly troubled in early 2017 as inflation fell from it's February/March peak.
2. Bad = High Debt, High Short Interest, Small Caps
Dissecting equity market performance another way, low quality companies (High Debt, High Short Interest, Smaller Cap) – had an ugly week at the S&P 500’s all-time highs last week. These style factors were down between -1.2% and -1.8% in the past five days. Conversely, our favorite style factors (Low Debt, Low Short Interest and Large Cap) have been winning all year, all up more than 20%.
