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A Closer Look: Market Style

The Standard & Poor’s 500 is a stock market index based on the common stock prices of the biggest 500 publicly traded American companies. The S&P 500 ((IVV)) successfully bounced off the 50-day moving average at the end of 2012 on it way to making new multi-year highs throughout January and into February.  However, while the index is quickly approaching all-time highs set in 2007, it also finds itself close to overbought territory. Anything above 70 on the Relative Strength Index indicates overbought conditions. The index is currently at 66 and has been straddling 70 since the beginning of the year. There’s definitely no need to sound any alarms as of yet though, as many on Wall Street are anticipating a long overdue correction. We all know exactly what happens when the consensus expects something to happen. It doesn’t. The S&P 500 index is up 6.85% for all of 2013.

The S&P 500 Value Index ((IVE)), which consists primarily of US large-cap value stocks in the financial services, industrial, and consumer cyclical industries, tend to have lower price to earnings ratios and higher dividend yields than the market as a whole. This index looks exceptional based on the charts, on a slow but steady trajectory pointing higher after having broken out past the 67.50 level. Compared to the S&P 500, the index is outperforming slightly, returning 8.03% year-to-date.

The S&P 500 Growth Index ((IVW)), which consists primarily of US large-cap growth stocks in the tech, healthcare, and energy industries, tend to have higher earnings growth rates, higher earnings multiples, and little or no dividend yields. While the index broke through resistance at the 79 level, it’s still struggling to maintain pace with its value counterpart. In the past month and a half, the index is up 5.65%, less than the overall market.

In the past few months, a short-term trend of value stocks outperforming growth stocks has emerged.

The MSCI EAFE Index ((EFA)), a global developed market index that encompasses Europe, Australasia, and the Far East, has established a nice uptrend since its lows in June. As the negative chatter surrounding China and Europe has subsided, or at least temporarily put on the back burner, the index surged to new multi-year highs in the last year before slowing down substantially in 2013. It may be on the verge of correcting. The index is up only 2.76% YTD.

The MSCI EAFE Value Index ((EFV)), which consists primarily of low P/E international large-cap value stocks in the financials, energy, and communications industries, finds itself above support at the 50 and 200-day MAs after hitting new highs at the end of January. The index must hold the 50 level if the index wants to continue its torrid run of 2012. The index is up 2.96% for all of 2013.

The MSCI EAFE Growth Index ((EFG)), which consists primarily of high-growth international large-cap growth stocks in the industrial, healthcare, and consumer cyclical industries, has slightly outperformed compared to the value index, unlike its American counterpart. The index is up 3.18% YTD.