10/31/12   Market Interrupted

Editor’s Corner

Ron Rowland

U.S. stock markets were closed Monday and Tuesday this week as Hurricane Sandy, also known as Frankenstorm, battered the east coast.  Markets are back to normal today after their two-day interruption, but millions of citizens are still far from anything resembling normalcy.  It will be awhile before the full impact of the storm is known and even longer to undo the damage.  It may take a week or more just to restore power.

Today, the stock market picked up where it left off, drifting mostly sideways as it has been doing for about three months.  International markets have been performing relatively better than ours for the past five months, although they look like they are starting to drift sideways themselves.  Earnings season has provided little in the way of positive surprises, even with the lowered expectations that were in place.  Prospects for an upside catalyst in the fourth quarter are dimming.  Between next week’s election and the impending fiscal cliff, Washington D.C. is responsible for more than its fair share of uncertainty.  A quick and successful resolution to the uncertainty could be the magic elixir the market craves, but don’t hold your breath.

Many analysts are starting to think that homebuilders have turned the corner, and various housing reports tend to support those views.  However, the doubters continue to believe the potential supply overhang from foreclosures is still very real.  The Fed is trying to do its part to spur real estate activity by pushing mortgage rates lower.  Another important part of the housing equation is employment.  People with no or low paying jobs don’t want to even think about making a large financial commitment like buying a home.  Today, the Labor Department said that the October employment report, the most significant piece of economic news prior to the election, will not be delayed due to Sandy and will be released as planned Friday morning.

Investor Heat Map: 10/31/12

Sectors

The four top-ranked sectors remain the same, although their strength has diminished.  Financials held the lead for a second week.  Insurance companies often perform well in the wake of a natural disaster because they can raise their rates.  Health Care is close behind and could easily retake the lead if Financials falter.  Consumer Discretionary and Materials are still closely aligned, although the gap between them and the leaders has widened.  Industrials, Utilities, and Consumer Staples are barely avoiding negative readings today.  We now have three sectors in the red, with Energy and Telecommunications joining Technology on the downside.  Technology remains in last place as earnings season is weighing heavily on the sector.

Styles

Only four style categories are registering positive momentum, and two of them are just fractionally above zero.  The rankings favor Value over Growth with the three Value categories among the top four positions and the Growth categories occupying three of the bottom four slots.  Large Cap Value sits at the very top followed by Mid Cap Value.  Mid Cap Blend and Small Cap Value are tied for third with zero readings.  Large Cap Blend heads up a long list of styles with negative momentum this week.  This is the style category where the S&P 500 resides, so the broader market has now lost all of its upside momentum.  Mega Cap defines the midpoint again this week, and Micro Cap finds itself wedged in amongst the poorly performing Growth categories.  Small Cap Growth is on the bottom.

Global

China maintains its position as the top-ranked category.  We are starting to notice a change in sentiment for the country.  Outlooks appeared to be uniformly bearish a couple of months ago, but some analysts are now thinking the worst is over for China.  Pacific ex-Japan moved up a spot to second place and was the only equity category to gain momentum this week.  The region appears to be quite strong with only Singapore lagging.  Europe fell another notch to third.  US-listed ETFs investing in Europe are mostly up today, resyncing with their underlying markets after the two-day market closure here.  Global X Greece (GREK) is the big exception, trading down more than -10% today.  This was expected when Greek stocks fell hard on Monday amidst opposition to parts of its latest budget and austerity plans.  The broad international benchmarks of EAFE and Emerging Markets held on to their fourth and fifth place positions.  The U.K. and Canada swapped places with Canada falling slightly behind.  World Equity is now the lowest ranked global category still sporting positive momentum.  The U.S. joined Latin America and Japan in negative territory.  All three are tightly bunched, but Japan is still listed last.  The U.S. could easily have that dubious honor by the time of our next update.

 

Note:

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 level of devastation at the Jersey Shore is unthinkable.”

NJ Governor Chris Christie, October 30, 2012


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