Don't Hold Your Breath For The High-Beta Performance Chase - It Already Took Place

Tyler Durden's picture

When there is nothing left to base your permabullish stance on (earnings collapsing, top-line misses, end of surprise factor from ECB/Fed, and sentiment uber-bullish) there is always 'career-risk'. The high-beta performance chase - the need to reach for high-beta names/sectors/indices in the hope that if the market keeps ripping, your performance is levered and you don't lose your job - has been proffered by many 'strategists' for their optimistic short-term projections and year-end targets for the S&P. The problem with this thesis is that it already happened - and dramatically! Since Draghi uttered his magical words, the high-beta Russell 2000's P/E has soared relative to the other major indices. Just as it did during the LTRO exuberance, RTY has seen its P/E surge more than 2x more than the Dow (and reached an epic 9x above the Dow - at 22x Forward earnings on Friday). Since then, the beta-chase has actually decelerated, so either the chase is over, or PMs see 'flatter' as the new 'killing it'.

Forward P/E ratios for the major US equity indices (upper pane) and the difference (lower pane) between the Russell 2000 (higher beta) and the Dow in terms of Fwd P/E...


As an FYI - a 10x spread between Russell 2000 and Dow Fwd P/E has been a notable 'peak' valuation spread in the past 5 years.

Chart: Bloomberg

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Squid Vicious's picture

or, hedgies are just taking a breather before the next "dash for trash"

Daily Bail's picture

Nice hire, Dimon.  Seriously, is there any fraud, theft, or border-patrol murder that doesn't have JPMorgan's fingerprints on it.

REPORT: Senior ATF Agent In Charge Of Fast 'N Furious Gun Running Program Was Also Working For JPMorgan
Rainman's picture

Bets have been moving into the bigs where the myriad fake earnings happen to be. This seems both diabolical and logically illogical ..very clever least until it doesn't work anymore. The flush will eventually be "oh! the humanity-type" event.

Id fight Gandhi's picture

An, remember the days when fundamentals matter? How can sell side anal-ists shovel shit now? Need new metrics!

TradingTroll's picture

Hi beta run over? Hahaha. Look at Canada's TSX Venture of junior stocks, at 1200ish (the 07 hi was 3300ish). Or look at the TSX exchange, temporarily lowering minimums on junior financings. Or call any junior CEO in Vancouver, puking blood. Or 50yr old Union Securities-sold to PI. Or Canaccord, the largest non-bank Canadian broker, which shuttered 4 of 5 broker floors in Toronto. Or other brokerages needing cash infusions.


I could go on, but today you guys make me laugh

Tombstone's picture

Are you even suggesting that the market might not go up everyday into eternity?   Shame on you!  CNBC and Bloomberg will pump it up another 10,000 points at least. 

chump666's picture

rogue trade season begins.

Nobody For President's picture

I did not get the memo it ever ended.

Don't tell my mom I'm a trader - she thinks I play piano in a whorehouse.

IMA5U's picture

ok   we're doomed 


short the market and buy silver and gold





Umh's picture

Many of the trash high beta stocks are still going up but, buyer beware is very appropriate at this time. Look at BGG I know we need their stuff but, we will put off buying it when we can.