We’re in the process of updating a report we publish for clients a few times a year looking at the most loved and hated stocks by Wall Street analysts.  In the report, we also provide an analysis of analyst ratings at the sector and market cap level.  Taking a view from the top, below is a look at how many analyst ratings there are per stock for large caps, mid caps, and small caps.

The S&P 1500 index is made up of the S&P 500 (large caps), the Mid Cap 400 (mid-caps), and the Small Cap 600 (small caps).  For the entire S&P 1500, there are 18,945 analyst recommendations, which equates to 12.6 analyst ratings per stock.  But analyst coverage varies widely by market cap.  Predictably, the largest stocks in the market have the most analyst coverage, while the smallest stocks have the least amount of coverage.  In the S&P 500, there are 21.2 analyst ratings per stock.  For mid caps, there are 11.5 analyst ratings per stock, and for small caps, there are just 6.2 analyst ratings per stock.

In terms of finding stocks that are going to outperform, there’s a reason why investors gravitate towards the small-cap space.  With fewer analysts covering small caps, there’s a better chance at finding stocks that are either undervalued or overvalued.  The more eyes there are watching a stock (or group, sector, index, or country), the higher the likelihood that the “efficient market hypothesis” is at work.

On another note, we also wanted to quickly touch on analyst sentiment without diving too deep.  (We’re saving that for our premium report.)  Right now, 49.8% of all analyst ratings are “Buy” ratings.  As shown below, at the start of the year, 47.2% of all ratings were “Buy” ratings, so analysts have gotten more bullish as the year has progressed.

Yesterday we published our monthly S&P 500 Sector Weightings report for clients.  The report provides a detailed historical look at S&P 500 sector weightings, and it’s something clients find very useful.  Below we show current S&P 500 sector weightings.  Anything stand out?

Yes, at 25.78%, the Technology sector now makes up more than a quarter of the S&P 500.  That’s a bigger slice of the pie than the smallest six sectors combined.

The Financial sector is the second largest at 14.65%, followed by Health Care at 13.71%, and then Consumer Discretionary at 12.86%.  There was a time relatively recently when Energy, Consumer Staples, and Industrials all had weightings above 10%, but at this point they’re all in the single digits.

Getting back to the Technology sector, below is a look at its historical weight in the S&P 500.  At 25.78%, Tech’s weighting was only higher during a 10-month window from December 1999 to September 2000.

Anyone that follows the market has likely been watching the downtrend that the S&P 500 has been in since the January highs.  While the index has repeatedly bounced off of support at the 200-day moving average (DMA), the 50-DMA has been a tough hurdle.  In recent weeks we’ve seen rallies fail just as prices have approached or even briefly traded above the 50-DMA.  The result has been a series of lower highs and higher lows.

Following the bounce that equities have seen since last Thursday, the top of the S&P 500’s short-term (and increasingly becoming an intermediate-term) downtrend has once again come into play.  In early trading today, the S&P 500 has traded above its 50-DMA but hasn’t quite been able to break out above its downtrend.  The next few days should go a long way in helping to determine which way the market will ultimately break from this pattern.

Looking just at closing prices for the S&P 500 provides a much more optimistic picture.  As shown in the chart below, after two lower highs since the January peak, the S&P 500 has not quite made a higher high, but it has broken the downtrend.  While it may be tempting to take this upside break and run with it, a more prudent path would be to wait at least for confirmation in the chart above as well as an upside break above the mid-April highs.

As we highlighted in a prior post, when the dollar rallies, companies with domestic exposure tend to outperform their multi-national peers.  Since small-cap stocks tend to have little in the way of international exposure, they tend to be a big beneficiary of dollar strength.  Look no further than the relative strength chart of the Russell 2000 versus the S&P 500 over the last year.  When the line is rising, it indicates that small caps are outperforming and vice versa for a falling line.  While small caps were underperforming by a pretty sizable margin back in mid-February, they have completely reversed in the last three months and are now outperforming large caps by nearly their widest margin of the last twelve months.  Quite a turnaround!

In terms of the recent outperformance in the small-cap space since the US Dollar Index’s low in February, it couldn’t possibly be more broad-based.  Since 2/16, the S&P 500 is down 2.3% while the S&P 600 small-cap Index has actually rallied 2.7%.  What’s really amazing, though, is that all 11 sectors in the small-cap space have outperformed their large-cap peers since 2/16.  While the performance spread is widest in the Health Care sector at more than 15 percentage points, even small-cap Technology and REITs have managed to outperform their larger peers.