09/12/12   Apple vs. The Fed

Editor’s Corner

Ron Rowland

This week it’s Apple (APPL), the largest company on the planet, versus the U.S. Federal Reserve, the most powerful central bank on the planet.  The two behemoths are locked in a battle to see which one can generate the most media attention.

Apple took center stage today, unveiling its long awaited iPhone 5.  Investors and customers have been waiting more than a year for this.  In fact, it was 11 months ago when the first wave of iPhone 5 frenzy was answered with the somewhat disappointing introduction of the 4S.  Still, shares of Apple have risen more than 55% since then.

Without as much fanfare, the Fed has gathered today for a policy meeting.  However, this session is a two-day event, so we won’t learn the results until tomorrow.  Investors and traders around the world will be tuned in at the conclusion to get their first glimpse at another anticipated unveiling – QE3.  Apple was able to buy another year with the 4S, but we doubt the Fed can pull off a similar stall with an ‘S’ version of a previous QE. 

Last Friday’s release of the August employment report provided further room for Ben Bernanke and his team to take action tomorrow.  According to the Atlanta Fed, the economy needs to create 104,116 new jobs each month just to keep pace with population growth.  In August, only 96,000 jobs were created, yet the headline unemployment figure dropped from 8.3% to 8.1%.  How can this be?  Digging into the data a little deeper, you will find that the unemployment rate calculation includes an adjustment for 368,000 people leaving the workforce last month, most abandoning their job search.  The Labor Department released other revealing numbers. The labor participation rate has now fallen to a 31-year low of 63.5%, and if the labor force had remained constant the past three years, the real unemployment rate would be 11.2%.

Apple has thrown down the gauntlet on this week’s media challenge, grabbing numerous headlines, prompting countless news articles, and generating millions of clicks.  Today belongs to Apple.  Tomorrow belongs to the Fed.  For our part, we’ve attempted to give them equal coverage today.

Investor Heat Map: 9/12/12


The sector rankings bear little resemblance to a week ago.  In fact, only two of the ten major sector categories managed to avoid the “relative strength shuffle” this week.  For starters, we have a new leader with Consumer Discretionary sitting on top.  The particularly interesting note about this accomplishment is that none of the subsectors had a spectacular week.  Retailers, home builders, and leisure companies had mostly average results.  However, there were also no big losers, and perhaps that is the real strength of the Consumer Discretionary sector.  Telecommunications edged up a notch into second place, but it was the next three positions that posted the most significant changes.  Financials finally broke free of the bottom half and moved up to third.  Energy more than doubled its momentum and climbed into fourth, and Materials was the big winner, jumping from ninth to fifth.

All the changes at the upper half trickled down to produce changes in the lower portion as well.  Technology took a big tumble, falling from first place to sixth.  However, the sector managed to increase its momentum in the process, so it’s more a case of not keeping pace as opposed to new weakness.  A warning from Intel (INTC) certainly contributed to the lagging performance.  Health Care slipped from fourth to seventh while Consumer Staples slid two places to ninth.  The two sectors that held their positions this week were #8 Industrials and last place Utilities.


The rise of Small Caps continues this week as the trio now occupies the top three slots.  Additionally, if you look at their numerical scores, you’ll see they are also in a 3-way tie for the “King of the Hill” title.  Micro Cap, the smallest of the small, is a category known to often chart its own course.  In an attempt to be linked more closely with the three Small Cap categories, Micro Cap finally moved off the bottom and up to seventh.  Mega Cap, the other capitalization extreme, was intruding on the Small Cap party at the top of the rankings last week by hanging on to the #2 spot.  It relinquished that position this week, falling all the way to eighth.

Although the eleven Style categories are all neatly sorted by their relative strength, a visual comparison of their absolute strength shows little difference.  The magnitude of the momentum bars are all similar, and indeed the momentum readings only differ by eight from the strongest to the weakest.  So while Large Cap Growth and Mid Cap Growth own the bottom at this time, there is not all that much that separates them from the top.


Just when you thought Europe might have moved into an overbought condition, it tacks on another huge weekly gain and separates itself from the pack to the upside.  Equity prices in Greece, Spain, Italy, and the rest of the region are on the upswing.  Five-year charts still look pitiful, but the one-year charts are showing signs of encouragement.  Canada held on to its #2 global ranking and is also trying to put some distance between itself and the lower ranked groups.  Canada’s equity prices are being helped along by strength in Energy, Materials, and the Canadian dollar.  The middle of the pack encompasses five categories this week.  World Equity, U.S., EAFE, Pacific ex-Japan, and the U.K. all posted nice gains but remain tightly bunched together.

Four categories define the bottom cluster this week, although there are significant differences among them.  Emerging Markets flipped from a negative intermediate trend to a positive one and is now trying to break through resistance established in early August.  Latin America got a nice pop this week, which managed to change its trend status to positive. However, the region needs to show sustained improvement before it can mount a meaningful climb in the rankings.  Japan remains the only developed market mired among the lagging categories of our global rankings.  China found support once again, with its early September decline halting at the same level as its June and July selloffs.



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.


“The performance of the stock has obviously been disappointing.”

Mark Zuckerberg, Facebook CEO at TechCrunch Disrupt Conference on 9/11/12


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