* Why Aren't Stocks Going Down? - A reader asked me that question and I sent this chart. The rise is quite steep. What is it? An index of home foreclosures? A measure of national debt? China's stock market? No, this is a chart of earnings for the S&P 500 stocks from 1954 to the present (weekly data). The five-year rate of change in those earnings is well over 200%, the highest during that 50+ year period. It's tough to sustain a bear market while companies continue to earn record profits.
* What's Been Working? - Since its lowest close during the August decline (8/15), the S&P 500 Index (SPY) has gained 7.9%. Here are returns over that period from the S&P 500 sectors:
Materials stocks (XLB): 13.8%
Industrials (XLI): 8.19%
Consumer Discretionary (XLY): 4.48%
Consumer Staples (XLP): 5.07%
Energy (XLE): 13.8%
Health Care (XLV): 5.41%
Financial (XLF): 5.84%
Technology: (XLK): 9.45%
Anything connected to the consumer has underperformed. Materials and Energy, perhaps reflecting strong commodity prices and a weak dollar, have been the big winners. The rise from the lows has been uneven and, if we should see new highs in SPY, I wouldn't be surprised to find many sector divergences.
* What in the World? - OK, let's take a look at international returns since the closing low during the August decline:
U.S. (SPY): 7.9%
EAFE (EFA): 9.6%
Emerging Markets (EEM): 22.9%
Canada (EWC): 16.2%
Hong Kong (EWH): 27.6%
U.K. (EWU): 9.4%
International Growth (EFG): 11.4%
International Value (EFV): 7.8%
As noted in an earlier post, Growth is outperforming Value and just about everything is outperforming the U.S. With the weakening dollar, it would seem we have a bit of the ABUSE syndrome: Anything But U.S. Equities.
* Returns by Capitalization - Back to the U.S., what's been outperforming on this part of the style box since the August decline low?
Large Cap (SPY): 7.9%
Mid Cap (MDY): 6.7%
Small Cap (IWM): 7.1%
Large caps are leading the way, perhaps because it's large cap sectors like Energy and Materials dominating performance. All the U.S. returns are pretty anemic when viewed internationally.
I think it's fair to say that the U.S. dollar is affecting returns here and abroad. Traders like to think that returns are a function of timing, but timing is of limited benefit if you're in the wrong sectors and themes.
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