Back on January 25th we highlighted just how narrow this market has become, with fully 83% of stocks in our global index having posted negative returns since the May 21st, 2015 high in the global equity market. Since then global stocks are a down a little, about 1.75% as chart 1 shows. Not much has changed with regard to the number of stocks posting positive returns since the May high (currently we’re at 519 vs 502 a few weeks ago, chart 2).
But, we’ve starting to notice the shape of the distribution change. Specifically, the distribution is becoming more positively skewed than before, which despite the name of the term is not a good thing. It means that more stocks are clustering around being severely negative since the May high (down by more than 18%), rather than just moderately negative (down by 12% or more).
Another way to describe this is to say that the mode of returns since the May 21st high two weeks ago was -24% and now it’s -30% (chart 3). In other words, the losses for losing stocks are getting more severe.
We don’t know what else to call this situation but a “stock picker’s market”. There are big landmines out there upon all of which passive or index hugging managers have stepped.