5 gut checks before the stock market's opening bell
By Shawn Langlois
|
|||||||
|
|
Good morning.
Since the financial meltdown about five years ago, stockpicking has become somewhat of a lost art.
Assets across regions and sectors have been moving in near-lockstep lately, with investors circling the wagons and seeking safety in numbers. Who needs to pay some suit a fat wad of cash to pick winners when they're all moving together anyway?
But there's been a meaningful break in the pattern this month, according to ConvergEx's Nick Colas, who points out that correlation among 10 different industry groups has dropped from as high as 88% in the prior two months to 79% at last check. Traditionally, that number comes in around 50%. "This allows for the benefits of diversification to offset the systematic risk of owning any one stock, bond, currency, commodity, or anything else," he wrote in a recent note .
Hedgies might be cheering what could be the return of the stockpicker's market, but it's worth noting that the S&P over the past few years has tended to underperform in the months and quarters following a correlation dip below 80% like we're seeing now.
Our "chart(s) of the day" gut check below illustrates how and why global markets are decorrelating, and what that could mean for investors. At least as far as Friday's session is concerned, it appears to be a good thing. With a few exceptions, like Dell, stocks are up from Shanghai to New York, even after the S&P broke below its 50-day moving average yesterday.
Key market gauges: Asia closed with big gains on the Hang Seng and Shanghai Composite with Europe following suit in the early going, paced by rallies on Italy's FTSE MIB .
The same looks to be true in the U.S. markets , with futures on the Dow and the S&P pointing to a strong open. Gold is moving higher, but it's a safe bet that it won't close anywhere near where it started this week.
The buzz: Blackstone's move to back out of its Dell buyout bid will be chewed on throughout the trading day, as investors try to figure out what to do with what's shaping up to be an ugly opening drop for Dell stock. The reaction on Twitter was generally one of faux surprise .
Also, watch for upbeat action in shares of Microsoft and Google when trading gets underway after yesterday's reports. IBM, however, is setting up for a tougher session. Read: Microsoft Google gain, IBM drops after hours .
Boeing is trending on Google's business pages on word that the FAA is expected to end the three-month grounding of the Dreamliner as soon as Friday.
PepsiCo is drawing lots of clicks on Market IQ after the company posted strong earnings that helped propel the stock yesterday. Here's why one Motley Fool writer says it's a better buy than rival Coca-Cola .
The chart of the day: A divergence between stocks in developed and emerging markets, as illustrated below, is a theme that has caught the attention of many pundits lately. The Sober Look blog chalks it up to several factors , including Apple's "spectacular decline," disappointing growth in China, the yen devaluation, and a violet drop in commodities. There's a pair trade with the S&P 500 and the Vanguard Emerging Market ETF somewhere in here.
Since the financial meltdown about five years ago, stockpicking has become somewhat of a lost art.
Assets across regions and sectors have been moving in near-lockstep lately, with investors circling the wagons and seeking safety in numbers. Who needs to pay some suit a fat wad of cash to pick winners when they're all moving together anyway?
But there's been a meaningful break in the pattern this month, according to ConvergEx's Nick Colas, who points out that correlation among 10 different industry groups has dropped from as high as 88% in the prior two months to 79% at last check. Traditionally, that number comes in around 50%. "This allows for the benefits of diversification to offset the systematic risk of owning any one stock, bond, currency, commodity, or anything else," he wrote in a recent note .
Hedgies might be cheering what could be the return of the stockpicker's market, but it's worth noting that the S&P over the past few years has tended to underperform in the months and quarters following a correlation dip below 80% like we're seeing now.
Our "chart(s) of the day" gut check below illustrates how and why global markets are decorrelating, and what that could mean for investors. At least as far as Friday's session is concerned, it appears to be a good thing. With a few exceptions, like Dell, stocks are up from Shanghai to New York, even after the S&P broke below its 50-day moving average yesterday.
Key market gauges: Asia closed with big gains on the Hang Seng and Shanghai Composite with Europe following suit in the early going, paced by rallies on Italy's FTSE MIB .
The same looks to be true in the U.S. markets , with futures on the Dow and the S&P pointing to a strong open. Gold is moving higher, but it's a safe bet that it won't close anywhere near where it started this week.
The buzz: Blackstone's move to back out of its Dell buyout bid will be chewed on throughout the trading day, as investors try to figure out what to do with what's shaping up to be an ugly opening drop for Dell stock. The reaction on Twitter was generally one of faux surprise .
Also, watch for upbeat action in shares of Microsoft and Google when trading gets underway after yesterday's reports. IBM, however, is setting up for a tougher session. Read: Microsoft Google gain, IBM drops after hours .
Boeing is trending on Google's business pages on word that the FAA is expected to end the three-month grounding of the Dreamliner as soon as Friday.
PepsiCo is drawing lots of clicks on Market IQ after the company posted strong earnings that helped propel the stock yesterday. Here's why one Motley Fool writer says it's a better buy than rival Coca-Cola .
The chart of the day: A divergence between stocks in developed and emerging markets, as illustrated below, is a theme that has caught the attention of many pundits lately. The Sober Look blog chalks it up to several factors , including Apple's "spectacular decline," disappointing growth in China, the yen devaluation, and a violet drop in commodities. There's a pair trade with the S&P 500 and the Vanguard Emerging Market ETF somewhere in here.
|
|
|
J.P. Morgan
|
Michael Arold went more granular
with his analysis , pointing out that every time
Chinese equities have failed to move higher while U.S. stocks kept rising,
"the divergence was followed by a rapid decline in the S&P 500"
at some point thereafter. Here's a complelling chart from earlier in the week.
|
|
|
StockCharts.com
|
The call of the
day: For Apple investors freaking out and looking for a
bottom, the sorta-good news, according to the Cracked Market blog , is that it should
find one around $350 and bounce back. The bad news, it'll be a temporary
respite. The blogger used Microsoft as a comparison, however unfairly it may
be. While Microsoft lacks the pizzazz of Apple, it's never faced any real
competition and still has a 70% hold on the PC market, he wrote.
The mostly rhetorical question he poses: "AAPL's long since given up the crown to Android, it recently fell behind Samsung, and is on the verge of being outsold by the Galaxy S4. If MSFT's stock price was flat for the last decade with stable profit margins and 80% market share, how is AAPL going to thrive in a fiercely competitive and commoditized hardware segment?"
Here's one guy who says Microsoft's "best days" are still ahead of it.
Random reads: As the mayhem in Boston continues to unfold, Twitter is leading the coverage. But is it a good thing? Depends. Check out "Social networking in the time of tragedy" and "The best Twitter response to tragedy: Shut up."
Twitter does its best work in the first five minutes after a disaster, and its worst in the twelve hours after that.
— Matt Roller (@rolldiggity) April 15, 2013
Here's a great map from Deadspin putting the twists and turns of the crazy night in the Boston area into some geographical perspective.
This weird, not to mention more than a bit spooky, "It could happen to all of us" ad gets pulled due to, ya know, recent events .
A day after the fertilizer explosion near Waco, Texas, some survivors of the siege of the Branch Davidians will gather for a memorial service to mark the 20th anniversary of the fire that left 76 men, women, and children dead. Twitter, had it been around back then, would have had a field day with that story.
Uh, I prefer horsemeat .
Need to Know starts early and is updated as needed until the opening bell, but sign up here to get it delivered once to your e-mail box. Be sure to check the Need to Know item. The e-mailed version will be sent out at approximately 8:45 a.m. Eastern. Follow @slangwise on Twitter.
The mostly rhetorical question he poses: "AAPL's long since given up the crown to Android, it recently fell behind Samsung, and is on the verge of being outsold by the Galaxy S4. If MSFT's stock price was flat for the last decade with stable profit margins and 80% market share, how is AAPL going to thrive in a fiercely competitive and commoditized hardware segment?"
Here's one guy who says Microsoft's "best days" are still ahead of it.
Random reads: As the mayhem in Boston continues to unfold, Twitter is leading the coverage. But is it a good thing? Depends. Check out "Social networking in the time of tragedy" and "The best Twitter response to tragedy: Shut up."
Twitter does its best work in the first five minutes after a disaster, and its worst in the twelve hours after that.
— Matt Roller (@rolldiggity) April 15, 2013
Here's a great map from Deadspin putting the twists and turns of the crazy night in the Boston area into some geographical perspective.
This weird, not to mention more than a bit spooky, "It could happen to all of us" ad gets pulled due to, ya know, recent events .
A day after the fertilizer explosion near Waco, Texas, some survivors of the siege of the Branch Davidians will gather for a memorial service to mark the 20th anniversary of the fire that left 76 men, women, and children dead. Twitter, had it been around back then, would have had a field day with that story.
Uh, I prefer horsemeat .
Need to Know starts early and is updated as needed until the opening bell, but sign up here to get it delivered once to your e-mail box. Be sure to check the Need to Know item. The e-mailed version will be sent out at approximately 8:45 a.m. Eastern. Follow @slangwise on Twitter.
No comments:
Post a Comment