munKNEE.com Your Key to Making Money
The average U.S. stock is DOWN over 1% thus far in 2014. How can that be when we’re being told almost daily that
the Dow and S&P 500 are hitting new all-time highs? The answer is likely to surprise you.
The above are edited excerpts from an article* by Charlie Bilello, Director of Research (pensionpartners.com) entitled The Nifty Fifty Market.
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (sample here; register here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Bilello goes on to say in further edited (as noted) excerpts:
There is a massive divergence going on between…the largest capitalization stocks and the rest of the equity market. As the table below indicates:
- the 50 largest stocks in the Russell 3000 are up 4.1% in 2014 while the average return for the rest of Index (51-3000) is -1.1%.
- the 50 largest stocks in the small cap index (Russell 2000), which peaked back on March 4, are up 3.8% while the rest of the index is down -4.9%.
There has been a nearly perfect relationship in 2014 between the size of a company and its return. The Chart below speaks for itself but I’ll make one comment on it anyway. The largest 500 stocks are up +2.7% since March 4 while the smallest 500 stocks are down -14.7%. That is a truly incredible spread.
Today’s “Nifty 50”
The table below shows the Russell 3000 stocks with a market cap greater than $50 billion and returns greater than 5% year-to-date. The highlighted names were in the original Nifty 50, including Johnson & Johnson (JNJ), Merck (MRK), Walt Disney (DIS), Schlumberger (SLB), and PepsiCo (PEP) among others.
The question for investors, of course, is “What does this selective advance mean for the markets going forward?”
- Is it merely a benign rotation into cheaper mega caps or
- a harbinger of more difficult times ahead?
Many seem to be arguing the former, using the fact that the major indices are still hitting new all-time highs, and the trend is still up, to make their case. Indeed, extreme bullish sentiment here confirms that most investors don’t seem to be bothered by the fact that the average stock has not been participating this year.
While it is hard to argue with these bullish investors (who could argue with “all-time highs”?), it is also hard to simply ignore the message that this selective advance is sending.
In my view, that message is clear:
- The larger, institutional players are systematically rotating out of illiquid small caps names and hiding in names with the highest liquidity.
- They are at the very least anticipating a more difficult market environment to come and likely something more severe.
This defensive rotation is not simply from small to large, but can also be seen across sectors (Utilities are the top performers in 2014, Consumer Discretionary bottom performers) and asset classes (Long duration Treasuries outperforming stocks and intermediate-term Treasuries).
While the S&P 500 has ignored this defensive rotation thus far in 2014, the average stock has not. Some food for thought next time you read about those “all-time highs.”
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://pensionpartners.com/blog/?p=360; © 2014 Pension Partners, LLC – All Rights Reserved. (This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.)
Related Articles:
1. Extreme Greed By the Crowd Suggests You Show Some Fear! Here’s Why
Greed may have been good for Gordon Gekko. but in the investment world it rarely is. As Warren Buffett is famous for saying “…be fearful when others are greedy and greedy when others are fearful” [and now is such a time]…to start showing some level of fear here in the face of extreme greed by the crowd. The crowd can be right for a long time, but they are rarely right at extremes. While this time may be different, the probabilities suggest that at the very least it will be a more difficult environment for equities going forward.
2. Make No Mistake – A Major Stock Sell-off Looms! Here Are 4 Ominous Signs
The 4 fundamentals and technicals discussed in this article accurately called stock market crashes in 2000 and 2007 and these same market metrics are again TODAY warning that a possible financial tsunami is brewing on the horizon. No one knows for certain WHEN the tsunami will hit Wall Street…but, without question, today’s stocks exhibit extremely exaggerated valuations, and extremes never last, so make no mistake, a major stock sell-off looms.
3. These Indicators Should Scare the Hell Out of Anyone With A Stock Portfolio
For US stocks — and by implication most other equity markets — the danger signals are piling up to the point where a case can be made that the end is, at last, near. Take a look at these examples of indicators that should scare the hell out of anyone with a big stock portfolio.
4. Are You A Bull Or A Bear? Here Are Indicators & Charts That Support Your Thesis
The current U.S. equity market has something for everyone. Whether you are bullish or bearish, there is no shortage of indicators or charts you can use to support your thesis. Let’s run through both the Bull and the Bear case here. In the spirit of Confirmation Bias, feel free to skip ahead to the part that best supports your current positioning.
5. Relax! The Stock Market Is Anything But “Scary-Overvalued” – Here’s Why
Are we near the end of one of history’s great stock market rallies? I don’t think so. Yes, prices are in the upper half of their long-term trends, but it’s not what you might call “scary-overvalued.” There is still plenty of room on the upside before historical precedents are violated. Let me explain further. Read More »
6. Are We In Phase 3 – the Final Phase – of This Bull Market Yet?
Are we in the third phase of a bull market? Most who will read this article will immediately say “no” but isn’t that what was always believed during the “mania” phase of every previous bull market cycle? With the current bull market now stretching into its sixth year; it seems appropriate to review the three very distinct phases of historical bull market cycles. Read More »
7. Is Now the Calm Before the Storm?
I’d argue that the record low volume shows investors aren’t looking ahead as much as looking behind and reminiscing at how good things have been over the past five years or so. They’re expecting more of the same even though it’s mathematically impossible people. Read More »
8. Should You Care What’s Happening On the Nikkei 225? YES! Here’s Why
Should markets around the world really care about what the Nikkei 225 Index does? The Power of the Pattern suggests “yes”! Here’s why. Read More »
9. Collapse of S&P 500 May Be Only Weeks Ahead! Here’s Why
When Staple sector (i.e. defensive) stocks started to reflect greater relative strength than Discretionary sector stocks back in 2000 and again in 2007, the S&P 500 began to fall dramatically in the ensuing months. That’s happening again. Can a collapse of the S&P 500 be far behind? Read More »
10. There’s Evidence – Plenty of It – That the Bear Is No Longer Hibernating. Here’s Why
The health of a market is best assessed along three vectors: fundamentals, technicals (price action) and sentiment and this is what each is saying about the health of the markets these days. Read More »
11. A 20%+ Sell-off is Brewing In the Lofty U.S. Stock Markets – Here’s Why & What the Future Holds
For today’s seriously overextended and overvalued US stock markets the best-case scenario is a full-blown correction approaching 20% emerging soon while the worst case is a new cyclical bear market that ultimately leads to catastrophic 50% losses. Read More »
12. Margin Debt: It Doesn’t Matter ’til It Matters! Is Now the Time to Be Worried About the S&P 500?
It doesn’t matter until it matters! IF margin debt should start decreasing swiftly, history would suggest something different is taking place in the mind of aggressive investors. Will a decline in margin debt from all-time highs matter this time? Read More »
Last year’s “Sell in May” period was only the third time since the turn of the century that stocks have postedstockcrash-2 double-digit gains from May through October so, with stocks still near all-time highs as the calendar flips to May, do the law of averages suggest we’re on the brink of a major pullback over the next six months? Read More »
14. 2 Stock Market Indicators Are Saying “Be careful, don’t get caught up in the euphoria”
In the midst of all the optimism we see towards key stock indices these days, there are two leading indicators that are flashing warning signals. They say, “Be careful, and don’t get caught up in the euphoria.” Read More »
15. Beginnings of Massive Stock Market Correction Developing: Don’t Delay, Prepare Today!
No stock can resist gravity forever. What goes up must eventually come down. This is especially true for stock prices that become grotesquely distorted. We have been – and still are – living in another dotcom bubble, and – like the last one – it is inevitable that it is going to burst. Read More »
16. No Problems Foreseen – Yet – from Sky Rocketing Margin Debt BUT
Is the latest credit-balance trough a definitive warning for U.S. equities? In this article we examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter. Read More »
17. 3 Historically Proven Market Indicators Warn of an Impending Market Top
It’s frustrating to see key stock indices keep pushing higher when historically proven market indicators are all warning of a crash ahead. Irrationality is exuberant to say the very least, and that’s why I believe this rally is counting its last days. Read More »
18. Time the Market With These Market Strength & Volatility Indicators
There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Words: 974 Read More »
19. The Stock Market Is a Risky Place to Be – Here’s Why
With both the fundamentals and the technicals saying the stock market is a risky place to be, we await its crash back to reality. Here’s why. Read More »
