As equity markets continue to repair the damage from April’s correction, we continue to find more and more stocks -- and groups of stocks -- that we want to be buying.
A growing number of those groups are coming from the financial sector.
Financials have made a comeback in the last week as a handful of financial indexes and individual issues are reclaiming their prior-cycle highs.
The relative trends are improving as well, with the large cap sector SPDR $XLF hitting new 52-week highs versus the S&P 500 recently.
When we think about the strongest stocks within financials, asset management and capital market stocks are top of mind.
In today’s post, we will dive in and outline some of our favorite charts in the space.
Before we do that, here’s the SPDR S&P Capital Markets ETF $KCE pressing against its former highs from 2021:
Are you happy the market is a mess? Or do you find it frustrating?
Keep in mind, the S&P500 is still at the same price it was 2 months ago.
Both the Nasdaq100 and Dow Jones Industrial Average are still at the same prices they were back in February.
We're almost half way through May.
The Technology Index, which is the largest component of the S&P500 (30%) and has the largest weighting in the Nasdaq100 (50%), is still where it was back in January.
Again we're half way through May!
Meanwhile, don't forget about the Small-cap Russell2000 that's hilariously still stuck below where it was way back in December.
The Consumer Discretionary Index and Dow Jones Transportation Average are also down for the year.
That's the market we're in.
Some people keep pretending that this year is just like last year.
But I cheated. I actually looked at the data. So I know better.
As most of you know, we use various bottom-up tools and scans to complement our top-down approach.
It's really been working for us!
One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
We've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.
That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.
We expanded our universe to include some mid-caps.
To make the cut for our Minor Leaguers list now, a company must have a market cap between $1 and $4B.
