02/15/12 Tech Takes The Lead
Tech Takes The Lead
As we often observe, employment and real estate are the twin keys to U.S. economic recovery or stagnation. The jobs situation seems to be improving for some despite the significant number of long-term unemployed workers. What about real estate, and specifically housing prices? The answers are critical, although not necessarily encouraging.
Quarterly data released last week by the National Association of Realtors showed a median one-year decline of 4.2% in metro area home prices. On a three-year basis, over 90% of metro markets saw a decline in inflation-adjusted single-home prices. On the other hand, homebuilder confidence is rising, perhaps because builders have refocused on multifamily dwellings.
In other words, markets are adjusting to a new reality. That’s the good news. The bad news is the adjustment is happening very slowly. Supply and demand will eventually find balance, but for now the scales are nowhere near even.
Stocks pulled back today as the S&P 500 was on the cusp of breaking out to a new 52-week high. (We could also say that the S&P 500 is approaching significant long-term resistance, but “cusp of breaking out” sounds much better.) The equity weakness so far looks like normal consolidation after a strong start to the year. In fixed income, ten-year Treasury yields moved above 2% for one day last week but then dropped back again. Crude oil and gold were higher, with oil prices around $102 and gold above $1700 market.
We have a new sector in the lead today. Technology climbed to the top from fourth place last week, completing a long journey after starting 2012 near the bottom of the list. The tech rally built steadily for weeks, driven by Apple (AAPL), and sector benchmarks hit new multi-year highs in early February. Previous leader Financials slipped to a tie with Industrials for second place. Consumer Discretionary is right behind with many retailers recently breaking out to all-time highs. Materials dropped to fifth place on weakness in agriculture and chemical companies. The bottom half of the list was unchanged. Health Care and Energy have an edge over Consumer Staples, Telecom, and Utilities. On the bright side, even last-place Utilities shows slightly positive momentum.
Last week’s perfectly inverse-by-size alignment is no longer present, but the general theme is still very much in force. Micro Cap kept its lead and is followed by the three Small Cap categories. Growth is still ahead of Value in this group. The pattern continues with Mid Cap Growth and Mid Cap Blend but then gets disrupted. The lower portion of the rankings shows the Growth/Value distinction to be more important than size. Large Cap Growth moved ahead of Mid Cap Value, while Large Cap Value replaced Mega Cap on the bottom.
Emerging Markets is again the leading global category after taking that honor last week. Latin America, led by Brazil, kept a strong hold on second place. The U.S. moved up to #3, changing places with China which is now fourth. China has been losing relative strength the last few weeks but still has good upward momentum. Europe and the United Kingdom hold the middle ground. Japan moved up a notch out of last place but has not yet cleared its October 2011 peak. Central bank interventions, while failing to weaken the Yen, may have at least headed off further strengthening and kept Japan’s currency in a relatively tight range. Canada is now in last place and has not traded above its 200-day moving average since last July.
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