Putting Recent Equity Momentum Weakness In Context

In the tables below, we look at various price momentum indicators for MSCI World Index sorted by sector. What is most obvious is, from a relative sector point of view, momentum in the health care sector remains strong and momentum in the energy sector remains weak. What is more surprising is how the recent weak momentum for global equities, even as headline indices remain elevated, is showing up in our data.

For stock pickers, fishing in the health care pond during this bull market has been akin to fishing with dynamite. To see what we mean, consider the fact that over the past four years 92% of all health care stocks have had positive performance compared to only 35% for energy stocks. On a net positive performance basis (i.e. % with positive performance minus % with negative performance), 85% of health care stocks have had positive performance compared to -31% of energy stocks. For the market in general, 49% of stocks have had net positive performance over the past four years.  However, over the past month net positive performance is at a paltry -47% and is only at -11% over the past three months.

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If we want a relative perspective, we can look at the percent of stocks outperforming the MSCI World Index. YTD, 75% of health care stocks are outperforming. Overall, seven of the ten sectors have a majority of stocks outperforming the cap-weighted index this year. Only a quarter of all utility stocks have managed to outperform the MSCI World Index. And over the past 12 months, only 7% of energy stocks have outperformed. As usual, about half of the market is outperforming in 2015 and about half the market is underperforming.

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How does momentum look like from various moving-average time frames? Health care, again, shows the strongest momentum from a 200-day perspective with 69% of all health care stocks trading above its 200-day moving average. Consumer staples and consumer discretionary stocks are right behind with 61% and 60%, respectively, above its 200-day moving average. However, overall momentum in the equity market on a shorter time frame, say 50-days, is somewhat weak. Only 23% of all stocks are trading above its 50-day moving average and only 18% are trading above its 20-day moving average.

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Lastly, another way of understanding the more recent weakness in momentum in general is by calculating net new highs. Net new highs is simply the number of stocks that are making new highs minus the number of stocks that are making new lows. The most important takeaway is the fact that across all time frames below, net new highs are negative. This means that more stocks are making new lows than making new highs. Over the past 200-days, net new highs is at -8% for the MSCI World Index. Tech stocks have found their way to the bottom of this table as 200-day net new highs for the information technology is -10%, second worst overall. Only 0.6% of all stocks are making new 200-day highs in the MSCI World Index. And over the past 50-days, new new highs is only at -31%.

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