Market insiders point to large-scale growth leadership | a cautious investor

With the S&P 500 and Nasdaq 100 hitting record highs once again this week, I was surprised to see that leadership trends have changed quite a bit since mid-December. My daily charting process includes a series of ratios to better assess and understand which stocks are leading, which stocks are lagging, and where the next key leadership themes will emerge.

Below are three key ratio charts: All of the incredibly valuable information I have discovered in recent years has been derived from: My Market Misbehavior Live Chart List. I also relative rotation graph It remains one of the key tools for tracking leadership rotation among the 11 S&P 500 sectors. I think the chart below complements RRG, giving a more comprehensive picture of the cycle between themes and styles.

This first chart addresses perhaps the most important theme for the stock market in 2024: the dominance of growth over value. The top panel compares the Russell 1000 Growth and Russell 1000 Value ETFs. The Russell 1000 Value ETF bounced back this week after returning in mid-January.

Next, there’s the S&P 500 Pure Growth and Value ETF, which ignores stocks like Microsoft Corp. (MSFT), which is “double counting” because it exhibits both growth and value characteristics. As growth stocks soared this week, this chart hit new record highs once again.

Finally, we charted the ratio of the S&P 500 High Beta to Low Volatility ETF, which has been trending steadily upward since early September. This provides another way to show how companies with high betas, or those that tend to experience stronger movements than their benchmarks, outperform more conservative companies that tend to be less volatile than their benchmarks.

Although strategists, including yours truly, have been talking about a “small-cap comeback” for quite some time, the following chart shows that investors are still waiting for that fateful day to arrive. The Russell 2000 ETF has underperformed large caps fairly consistently over the past two years, and the equal-weighted S&P 500 ETF is closer to its 52-week lows than the regular market-weighted S&P 500 ETF.

Conditions appear ripe for small-cap stocks to perform better.These ratios show how the strength of large-cap stocks continues to be a key market theme. In fact, owning stocks other than large-cap growth stocks over the past 12 months likely hasn’t helped your portfolio, with a few notable exceptions that have outperformed them. When in doubt, follow the trend. And this trend still favors large-cap stocks.

The next three data series represent what I call “offensive versus defensive” in that they track traditionally aggressive sectors, such as consumer discretionary, and traditionally defensive sectors, such as real estate. Aside from the bottom data series, which shows how hotels have underperformed their utilities, this chart shows that investors still prefer “wants” over “needs.”

In other words, offense still beats defense.

Overall, despite some notable corrective moves in late 2024 and early 2025, these stock markets appear to have moved right back into the growth-led bull market phase. By continually reviewing the charts discussed above, you will be able to better identify changes in leadership and take steps to better position yourself for what happens next.

For two more bonus rate charts covering key asset allocation topics, check out the latest videos on the StockCharts TV YouTube channel.!

RR#6,

dave

PS- Are you ready to upgrade your investment process? Check out our free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.

The author had no positions in any securities mentioned at the time of publication. All opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.