07/10/13   Coaching The Chairman

Editor’s Corner

Ron Rowland

The June employment report didn’t get as much press attention as previous ones this year.  Perhaps it was because it arrived on Friday, July 5, a day when many citizens were busy extending a holiday into a four-day weekend.  On the other hand, maybe it just wasn’t a surprise when we were told the unemployment rate remained steady at 7.6%.  Employers added 195,000 jobs in June, and the average for 2013 now stands at 202,000 new jobs per month.

If there was a surprise, it was the increase in the government’s broadest measure of unemployment.  The so-called underemployment rate, which includes “marginally attached” members of the labor force, actually rose from 13.8% to 14.3% in June.  One would think a 0.5% jump would garner attention, but that is not the case.

Earnings season is officially underway, but it will be some time yet before we see how things really shape up.  Only a small handful of the S&P 500 companies will release earnings this week.  The pace starts to pick up next week, but it won’t hit full stride until the last half of the month.

Just when you thought you might get a week’s vacation from Fed news, the Fed released its June FOMC meeting minutes today.  Turns out members are mixed.  About half the Committee wants to end the bond-buying program this year, while the other half wants to see much more improvement in the economy before tapering begins.  The meeting ended with coaching for Chairman Bernanke on how he should communicate key policy points.

Specifically, the minutes read, “most participants thought that the Chairman, during his postmeeting press conference, should describe a likely path for asset purchases in coming quarters that was conditional on economic outcomes broadly in line with the Committee’s expectations.  In addition, he would make clear that decisions about asset purchases and other policy tools would continue to be dependent on the Committee’s ongoing assessment of the economic outlook.  He would also draw the distinction between the asset purchase program and the forward guidance regarding the target for the federal funds rate, noting that the Committee anticipates that there will be a considerable time between the end of asset purchases and the time when it becomes appropriate to increase the target for the federal funds rate.”

Investor Heat Map: 7/10/13


No change at the top today: Consumer Discretionary is leading the charge and the Financials sector is not far behind.  Retailing has been the recent driver for Consumer Discretionary, and regional banks have provided the strength for Financials.  Industrials moved up to third on a jump in performance of defense and aerospace stocks.  Health Care is still strong, especially the biotechnology segment, but it has slipped to fourth this week.  Energy services stocks helped Energy move up to sixth as the sector eyes a move into the upper half.  Technology is still unable to mount a sustainable advance up the rankings.  Materials managed to ease out of its negative trend while Utilities and Real Estate remain stuck on the bottom.


The Style Edge chart indicates a significant advantage in the Micro Cap and Small Cap categories.  Outperformance quickly fades when moving down the rankings to the larger capitalization segments.  The rank-order of the top seven Styles is unchanged from a week ago, with Micro Cap firmly in the leadership role and adding to its strength.  The trio of Small Cap Growth, Small Cap Blend, and Small Cap Value are riding the coattails of Micro Cap and separating themselves from the Mid Cap and Large Cap groups.  These larger capitalization categories are not performing poorly.  In fact, they are performing quite well.  It’s only when comparing them to Small Cap categories that their relative weakness becomes evident.


Japan holds on to its top position in the Global rankings after dislodging the U.S. a week ago.  The countertrend rally in the yen seems to have run its course, and Japan’s plan to reduce the value of its currency is back on track.  The U.S. maintains its second place position.  Japan and the U.S. have placed much distance between themselves and all other regions of the world.  Together, their combined size is enough to pull the World Equity category into positive territory this week even though the rest of the globe is trending lower.  There is not much change in the middle of the pack with EAFE, U.K., Europe, and Canada occupying those slots.  The bottom four categories remain in steep downtrends despite the fact they are holding above their June lows.  Latin America is especially troublesome.  It continued to lose ground this past week even as the rest of the world advanced.


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.


“Tapering, whether it will be this year or next, is inevitable.”

Ryan Larson, head of U.S. equity trading at RBC Global Asset Management, 7/10/13


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