04/02/14   Time and Markets: A Matter of Perspective

Editor’s Corner

Ron Rowland

Most U.S. stock benchmarks are at or near all-time highs.  Those dark days of early 2009 seem far behind us, yet in many ways remain quite fresh.  Sometimes five years can pass in the blink of an eye, while other times it seems to drag on forever.  In many ways, these most recent five years gave us a combination of both.

For those at the top of the financial pyramid, the climb from 2009 has passed rather quickly.  The wealth gap got much larger during that span, and that translates into nothing but good news for the upper crust.  For this group, it’s been a period of good times, and time advances quickly when you are happy and having fun.

However, the perspective is the polar opposite for a different group.  An unprecedented number of citizens lost their jobs approximately five years ago.  Many are still unable to find a decent job at the salary they were accustomed to.  Many others have not been able to find any employment at all.  For these less fortunate people, the last five years must feel like an eternity.  The Bureau of Labor Statistics releases the March employment reports this Friday, at which time we will see if the outlook for these folks has improved.

The Dow Jones Industrial Average and the S&P 500 established their prior highs about six and half years ago in 2007, and they have been trading in new high territory for most of the past two years.  For them, the time has passed rather quickly.  The Nasdaq Index is another story.  There have been two major bear markets this century.  While all three benchmark indexes have fully recovered from the 2007-2009 financial crisis, the Nasdaq has not been able to recover from the 2000-2002 technology bust.

Another 15% advance is needed from these levels to erase the Nasdaq’s deficit.  Even if it were able to do so in the next few weeks, it has already taken more than fourteen years.  If the past five years seemed like a long time to those less fortunate, think how the last fourteen years have felt to investors still waiting to recover the losses from tech stocks they watched tumble back at the turn of the century.

Investor Heat Map: 4/2/14


Utilities shrugged off the negative market action last week and held on to its place at the top of the rankings.  Telecom jumped from fifth to second, but the big mover was the rise of Energy from eighth to third.  Much of Energy’s strength is coming from the small cap stocks within the group and the energy services industry.  Materials fell two spots to fourth while staging a strong recovery that got underway last Friday.  Real Estate improved a notch for the week but is encountering short-term overhead resistance today.  Financials slipped a couple of spots as Citigroup (C) failed the latest big bank stress test.  Technology fell three places amid divergent results among its subsectors.  Semiconductors are performing quite well while internet stocks have suffered a large setback.  Two of the defensive sectors, Consumer Staples and Health Care, are now near the bottom.  However, Health Care is not there because defensive stocks are out of favor.  Instead, it is more the result of speculative biotech stocks coming under selling pressure recently.  Consumer Discretionary sits in last place on a relative performance basis, although it has managed to maintain a positive momentum reading.


The shake-up in the style rankings that was readily visible last week is evident again today.  Mid Cap Value rose a notch to take over the leadership role, as Large Cap Value climbed two places to grab second.  Small Cap Value, which claimed the top spot for just one week, eased down to third while placing the Value trio firmly at the top.  Mid Cap Blend and Large Cap Blend round out the top-five, and this constitutes a ranking improvement for these two categories.  Mega Cap improved two places, suggesting investors may be starting to get more defensive.  Micro Cap fell below Mega Cap, providing another data point in favor of less speculative stocks.  Small Cap Blend slid lower, breaking up the Growth categories’ oligopoly control over the bottom three slots.


From out of nowhere, Latin America shot to the top of the global rankings.  Just three weeks ago, Latin America sat in last place, sporting a large negative momentum reading.  By the following week, it had climbed a notch to tenth, and last week it improved to sixth.  In that three-week span, iShares Latin America 40 (ILF) rose more than 10% while the S&P 500 gained less than 1%.  Brazil was the largest contributor, as iShares MSCI Brazil (EWC) surged nearly 14%.  Chile gained about 10% during that period and is holding steady today while the country is being shook by an 8.2 magnitude earthquake.  Despite the excellent short and intermediate-term performance in South America, we would advise caution since long-term downtrends have not been broken yet.  Europe held on to second place, while Emerging Markets rode the coattails of Latin America five spots to third.  The U.S. took its lumps, dropping from first to fifth in a week when international markets fared much better than stocks here at home.  The U.K. and China were able to muster enough upside action to push their momentum readings back into the green, leaving Japan as the only category still in the red.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.


“Time is an illusion.

Albert Einstein


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