Hewlett Packard Enterprise Company (HPE)

Will investors get a trick or a treat this week? This is the busiest week of the quarter for earnings, with about 33% of the S&P 500 reporting. That will include three of the IT titans, with MSFT, GOOGL, and AMZN releasing numbers on Wednesday and Thursday. Other tech and AI names that report include GLW, STX, TER, NXPI, FFIV, GEV, VRT, KLAC, NOW, FTNT, FORM, PWR, INTC, SNDK, TWLO, and MPWR. With so many tech charts an absolute mess, this might be the most important week of the year. It also will be an important week for Healthcare, with big pharmaceutical and biotech reports.

Which stocks rose to the top and which fell behind in the third quarter? In the quarter, the S&P 500 gained 2%, following a rise of 15% in 2Q and a loss of 4% in 1Q. But the strongest gains were concentrated within only a few sectors: Energy, Healthcare, and Information Technology. In fact, a majority of sectors were negative in the quarter. The laggards included Communication Services, Consumer Discretionary, Financial, Industrial, Materials, Real Estate, and Utilities. In the Argus Universe Coverage (more than 500 public companies), and looking at both BUY-rated and HOLD-rated companies, the average stock performance in the third quarter was a loss of 2% and the median change was a loss of 5%. The 10 top-performing BUY-rated stocks rose 71% on average. The following is a list of those top performers (noting that only four sectors are represented.) and also includes the bottom-five performers.

The S&P 500 has followed the technology-heavy indices to its first all-time high since August 13 and (of course) the move was led by -- big technology. Still, the move was minor, so we do not consider it an official breakout as follow-through is needed. Meanwhile, Treasury yields fell, adding to hopes that their spike higher has run out of gas. While we have seen some relief rallies in the most beaten-up names in recent days, market breadth remains less than inspiring. We have not had a strong session of breadth -- or at least an 80% day (NYSE advances/total issues & NYSE up volume/total volume) -- since back in April, when the market was emerging from a pullback.

Despite bursts of outperformance, small- and mid-cap stocks (SMID) have underperformed large-caps year to date -- as they have over the past five years. But they are edging closer to their large-cap rivals with a year-to-date return of 10%, just two percentage points below the S&P 500. As well, SMIDs may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by trade and tariff issues, fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps, with the P/E ratio on the Russell 2000 SmallCap Index at 17, compared to a trailing P/E of 25 for the S&P 500. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. SMID risks do carry risk, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.