U.S. equities were mostly lower in May with the largest capitalization stocks, on average, gaining slightly while the mid and small cap sectors of the market had average declines. Economic headlines for the month were mixed. Non-farm payrolls were strong in April, coming in above estimates. The unemployment rate declined slightly to 3.4%. Indexes measuring non-manufacturing and services segments of the economy were slightly higher for the month. Factory orders and retail sales were higher in April. Inflation rates had a small decline from the previous month with the CPI rate at 4.9%. Housing starts and new home sales increased while and existing home sales declined. The Fed raised rates by 25 basis points. Investors favored growth and momentum stocks in May. Among the top performing stock selection factors were projected growth rate, earnings surprise factors, and earnings trend. Higher quality value stocks were less favored as dividend yield, price/cash flow, p/e ratio, and quality rating were near the bottom of the factor performance list. Roughly a quarter of the industry groups we cover posted positive average price gains in May. Notable top performing groups were in the technology sector including semiconductors, computers, and electronics & instruments. Drugs also performed well. Industries tied to consumer discretionary spending were particularly weak during the month. Some of the industries near the bottom of the performance list were department stores, shoes, cosmetics & toiletries and apparel.
Value of the Market
Ford’s price to value ratio (PVA) is computed by dividing the price of a company’s stock by the value derived from a proprietary intrinsic value model. A PVA greater than 1.00 indicates that a company is overpriced while a PVA less than 1.00 implies that a stock is trading below the level justified by its earnings, quality rating, dividends, projected growth rate, and prevailing interest rates. While looking at the PVA for an individual company can give a good indication of its value, the average PVA for the market as a whole can provide insight into current valuation levels.
Source: Ford Equity Research