21 Nov 2019 IS NOT AS EXPECTED
2019 has not unfolded as anyone had expected. One year ago consensus predicted at least two more interest rate increases, a 10-year yielding around 3.50%, and markets generally flat to down.
In reality the overnight rate was reduced by 0.75%, the 10-year declined in yield to around 1.45% in September and the markets led by the 41% surge in the S & P technology sector, the greatest gain in a decade, advanced.
Most will readily acknowledge the equity advance is the narrowest since at least 2000, the result of this 41% surge in the technology sector.
Several times it appeared there was a possible rotation into value shares but as suggested the rotation was short lived at best. Value investors have underperformed for at least a decade and many are writing value’s epitaphs.
In many regards, today is reminiscent of 2000, the last era of value underperformance. I vividly recall Julian Robertson’s report in March 2000 that value is dead “at the hands of mouse clicks and momentum.”
Julian Robertson was the infamous value investor who built Tiger Management into one the world’s largest and most influential hedge funds.
Value began a seven year out performance in the summer of 2000 following the 80% implosion of the tech heavy NASDAQ.
Are we there today? As noted many times the markets are dominated by algorithmic and passive/indexing trading. The big get bigger and the small get smaller…aka the “Great Big Sucking Sound” utilizing Ross Perot’s infamous quote.
I don’t know nor does anyone else. I am ardent believer in the phrase “it is not what one does but rather why one does it.” Averages and means are of great significance and typically a period of massive over performance is proceeded with period of massive underperformance and vice versa….aka the boom bust cycle.
Commenting about yesterday’s market activity, equities traded lower on conflicting headlines about trade. The Minutes from the recent FOMC meeting were released, a release that had little impact upon the markets as such were largely as expected.
Last night the foreign markets were down. London was down 0.71%, Paris down 0.14% and Frankfurt down 0.06%. China was down 0.25%, Japan down 0.48% and Hang Sang down 1.57%.
The Dow should open flat in as trade negotiations can be viewed as “fluid.” The 10-year is off 2/32 to yield 1.75%.