We divide all stocks into two baskets: 1) cyclicals, which includes consumer discretionary, industrials, materials, technology and financials; 2) counter cyclicals, which includes health care, consumer staples, telecom and utilities. Generally the cyclical basket performs best when economic data comes in on the strong side of expectations and stocks have been in a statistical slump.
The Pending Home Sales Index has been running quite a bit hotter than the Existing Home Sales Index since late 2011. This month’s report cooled that trend somewhat. The Pending Home Sales Index surprised on the downside in September. The consensus expectation was for no change month-over-month.
The Nikkei had the pre-FOMC jitters last night finishing down 2.75% to close at the medium-term rising trendine. KDDI took it on the chin as the worst performing stock on the day, finishing down 5.3% on bets it will loose market share to NTT DoCoMo as the latter ramps up incentives to gain users.
Today’s disappointing Ifo Business Climate Survey was lead by a general drop in the assessment of the Services Sector and, in particular, a sharp fall in the expectations component:The overall moderation does not, however, appear to bode poorly for the upcoming release of economic output in the third quarter:
In our quarterly call yesterday, ”Investing in a Post QE World” (here is a link to a video of the presentation), we highlighted the systems software industry as one where value is still compelling and many of the companies in that industry are very shareholder friendly. In particular, we highlighted Microsoft and CA Inc.
We received a question today regarding the usefulness of the Shiller P/E. For starters, it has a wonderful long-term history. There aren’t many series where we have 130 years of history.
With headlines like ’Plans for Political Union Unravel’ (WSJ) and ’Draghi’s Blunt Warning on Bank Stress Test’ (FT), policy (or, rather, lack of a coordinated one) appears poised to exert its influence on European equities once again:Combined with somewhat weaker economic and sentiment-related data releases, as well as overbought and extended technical patterns, can European
Everyone that’s read Burton Malkiel’s A Random Walk Down Wall Street learns the idea that the movement of stocks is random–they can rise or fall on any given day. Like a hitter in baseball or a shooter in basketball, players can go on ”runs” that temporarily give the appearance of non-randomness.
China’s flash manufacturing PMI came in at 50.9 in October vs the official reading of 50.2 in September. Readings above 50 signal expansion. The rise was mostly driven by the backlog of work and employment components (though the employment component remains below 50), but new export orders registered a small gain as well.
We perform a variety of calculations to understand the often imperceptible changes in the underlying structure of the stock market. One calculation we make is to measure the percent of stocks making a new 200-day high. Historically this metric gets the most extended during the first move off a major low–like in September 2009.