The SPX is up 12.3% for the year through Dec.5. Most US portfolios have underperformed this
benchmark by a significant margin. Charitably, the average portfolio is up about 3.5 - 4.0% for
the same period. The broad economy has been comparatively strong this year. Business pricing
power has not been strong, however, with sharp weakness evident for the oil patch and a range
of commodities producers. In addition, a stronger dollar may have attracted some offshore
money into the US, but it is penalizing the eps of a number of multinationals via translation
penalties, and it concerns some holders of small cap domestic shares who know that a stronger
dollar can attract foreign competition in previously more secure markets. Finally, the expiration
of QE 3 has led to a rotation in favor of large cap established companies and away from the
shares of smaller companies where volatility is higher.
It is also interesting to note that the SP 500 has been matched in performance this year by the
long Treasury bond. This reflects both risk aversion from the end of QE 3 as well as the
continuation of low inflation and short rates at the zero bound level.
Check out the relative performance of the SPX against The Russell 2000, the Value Line
1700+ issue equal weighted index and the Long Treas. SPX Weekly
Favorable monthly data for new orders, employment, auto sales etc. have helped the market
recover from the recent Oct. lows. Despite the sparkle of the monthly data, the weekly
forward looking indicators have been trending down since early Aug. and suggest that an
economic slowdown may not be far off.
As pointed out in a note on Nov. 13, the SPX is overbought. Since, it has soldiered on to hold
that overbought. SPX Daily Players have been reluctant to leave the party for the big cap stocks
in hopes that they will be rewarded with a nice Santa rally as the year winds up.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!