12/24/13   New Year Will Begin With Tapering

Editor’s Corner

Ron Rowland

Last Wednesday, the Fed indicated the country’s economic strength was sufficient enough to allow tapering to commence.  They acted on this insight by reducing the quantitative easing stimulus from $85 billion a month to $75 billion a month.  Make no mistake about it, $75 billion a month is not chump change.  There is still a huge amount of stimulus entering the system.

Two days later, the Commerce Department essentially confirmed the Fed’s assessment when they reported third quarter GDP increased at a 4.1% growth rate.  Not only was this an unexpected upward revision from the original 3.6% figure, it was the fastest pace in two years.  The improvement was attributed to a spike in retail sales and growth in exports.  Analysts are still reporting mixed results for retailers this holiday season, but retailing mutual funds and ETFs seem to be focusing on the success stories and are zooming upward.

Markets close early today and all day tomorrow for Christmas.  Then, it is just four more days of market action until 2013 comes to a close.  Whether it is Christmas, Hanukkah, or something else you are celebrating this time of year, we wish you and yours a joyous holiday season and a successful 2014.

Investor Heat Map: 12/24/13


Last week, we predicted Industrials would be successful in overtaking Technology for the top ranking, and today that came true.  Technology is not going to relinquish the top spot without a fight though and is already positioning itself for a return to the summit.  Consumer Discretionary, Materials, Health Care, and Financials remain in their same relative positions from last week.  All benefited from the market rally and are displaying much stronger momentum today.  Energy, Telecom, and Consumer Staples shifted positions with Consumer Staples sliding below the other two.  Telecom flipped back into a positive trend.  Utilities also managed to shed its negative momentum, and Real Estate continues to bring up the rear.


The Style rankings have been struggling to establish a recognizable pattern the past few weeks.  There is nothing definitive today, although the beginning of an inverse capitalization pattern is starting to take shape.  Micro Cap is on top again, and it has increased its lead over all the other categories.  Small Caps occupy three of the next four slots, lending additional evidence to the inverse capitalization pattern.  However, the lower half of the rankings are still a jumble of Large Cap and Mid Cap categories.  Growth is stronger than Value in all capitalization segments.


The U.S. held on to its top-ranked position, although Europe is mounting a serious challenge.  The U.S. dollar gained strength after the Fed’s tapering announcement, but that didn’t stop Europe from narrowing the gap.  World Equity, the U.K., and EAFE round out the top five and all have double-digit momentum scores today.  EAFE, Japan, and Canada were all in the red a week ago and were among the beneficiaries of the recent market rally.  China was the primary exception in this week’s advance of stocks, slipping from fourth to eighth and flipping to a negative trend.  Emerging Markets, Pacific ex-Japan, and Latin America gained strength while remaining at the bottom of the rankings.


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 key takeaway from this report is simply that the underlying momentum in U.S. economic activity has shifted up a gear in Q3.”

Millan Mulraine, Deputy Head of U.S. Research and Strategy at TD Securities, on the upward revision of GDP, 12/20/13


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