12/2/15   The Internet Won

Editor’s Corner

Ron Rowland

The Internet won. I haven’t seen the final sales figures for in-store shopping versus online sales covering the recently concluded Black Friday through Cyber Monday period. It would appear that the estimated $20+ billion rung up by brick-and-mortar locations will surpass the estimated $12 billion for Internet sales. Once the counting is done, the in-store figures will likely account for the largest piece of the pie. However, as for the percentage increases over a year ago, online sales growth will likely swamp the gains of traditional outlets. This trend has been firmly in place for years, so it is just a matter of time before the Internet becomes the dominant shopping venue.

Although the financial media has focused on retailing stocks recently, other market segments have seen more action this past week. Clean energy was a big winner with the First Trust NASDAQ Clean Edge Green Energy ETF (QCLN) popping 4.3% higher in the four days surrounding the holiday-shortened week. Natural gas is considered a clean-burning fuel, but it did not receive the same treatment from investors. First Trust ISE-Revere Natural Gas (FCG), an ETF holding the stocks of companies in the natural gas industry, dropped 3.5%. The leading natural-gas commodity ETF, United States Natural gas (UNG), fell 3.6%. Many other energy-related industries followed the lead of natural gas and posted big losses for the week.

Semiconductor stocks were another group moving to the upside. SPDR S&P Semiconductor (XSD) jumped 3.6%, and PowerShares Dynamic Semiconductors (PSI) climbed 3.5%. Business Development Companies and REITS also saw good gains. Outside of the U.S., First Trust Germany AlphaDEX (FGM) posted a solid 4.6% increase, and First Trust United Kingdom AlphaDEX (FKU) boosted its value by 3.5%. International markets also produced some huge losers: iShares MSCI Brazil Capped (EWZ) plunged 10.5%, and iShares MSCI South Africa (EZA) surrendered 6.4%.

The Federal Reserve meets in two weeks, and nearly everyone is now convinced this will be the meeting it finally begins raising interest rates. For now, long-term interest rates actually declined over the past week, allowing the PIMCO 25+ Year Zero Coupon U.S. Treasury ETF (ZROZ) to surge 3.1% and the Vanguard Extended Duration Treasury ETF (EDV) to gain 2.6%. Meanwhile, emerging-market bonds went the other direction, with WisdomTree Emerging Markets Local Debt (ELD) shedding 1.3%.

All of these big swings took place during a period when the Dow Jones Industrial Average gained just 0.5%, and the SPDR S&P Retail ETF (XRT) lost 0.6%. This past week has been another example of having to look beyond the headlines to find out what is really moving in the markets.

Investor Heat Map:12/2/15


Changes to the sector rankings are minimal this week. Ten sectors are still in the green, and one is in the red. Technology is still on top, and Utilities remains on the bottom. There were some minor changes, though, as Financials moved ahead of Industrials to claim second place. Industrials was the only sector posting a loss of momentum this week. Consumer Discretionary held on to its fourth-place ranking as retailing stocks adjusted to Black Friday and Cyber Monday sales reports. Real Estate was the “big” mover this week; although, it only moved two places higher. Materials and Telecom were both pushed lower by the rise of Real Estate, and Consumer Staples, Health Care, and Energy held steady. The momentum score for Utilities is barely negative, but it is in the red nonetheless. Its chart is a series of quick rises followed by even sharper downdrafts.


Mega-Cap is at the top of the style rankings for the tenth consecutive week, but most of the other categories are an incomprehensible jumble. Large-Cap Growth has been reasonably steady and now has six weeks in the #2 spot under its belt. However, third place is occupied by Small-Cap Value, which is located at the opposite corner of the traditional nine-square style box from Large-Cap Growth. Additionally, Large-Cap Value plunged four places to eighth. Although Mega-Cap is at the top, the fact that Large-Cap Value is down in eighth suggests that large capitalization dominance is starting to erode. Other shifts supporting this observation include Small-Cap Blend and Small-Cap Growth both climbing one spot to claim fifth and sixth, while Micro-Cap jumped from last place to seventh. The rise of the small-capitalization categories, which are now mixed with the large-capitalization categories, has forced the middle ground to the bottom of the heap. Mid-Cap Growth has replaced Micro-Cap on the bottom, and Mid-Cap Value and Mid-Cap Blend now occupy the ninth and tenth places, respectively.


The quantity of global categories in the green increased by two this week as the Eurozone and EFEA edged into slightly positive trends. However, five categories remain in the red, indicating that slicing the market geographically is more problematic than segmenting by sectors or styles at this time. Perhaps “problematic” is not the correct word, as an optimist would claim this large differentiation among the global categories provides additional opportunities. The U.S. recaptured the top spot after relinquishing it to Japan two weeks ago. Japan didn’t fall far, landing in second. World Equity, which is a market-capped weighted benchmark of all the stocks in the world, rose a notch to third thanks to its heavy weighting in U.S. stocks. The Eurozone climbed four spots to fifth, and EAFE held steady in sixth. Pacific ex-Japan and the U.K. are just slightly in the red, which is significantly better than the three categories ranked below them. Emerging Markets fell two spots, and Canada climbed off the bottom. The two are now closely aligned and sporting double-digit negative momentum scores. Latin America has been mired in a steep downtrend that appeared to be stabilizing a week ago. That observation may eventually prove to be accurate, but for now, Latin America has again dropped to last place.

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.


“Black Friday shoppers are looking for those one or two key items they know are on promotion, and they are doing less impulse spending.”

– Bridget Johns, head of marketing and customer experience at RetailNext


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