23 Sep A BUY ON DIP RALLY?
To write the incredibly obvious portfolio performance has suffered if one does not own the mega sized technology concerns. Bloomberg writes financial and energy stocks, once dominant in the S & P 500, are taking even more of a back seat to technology shares as they did as a bull market ended 20 years ago.
The two industry groups together have trailed the weight of the S & P 500 Technology Index by as much as 17% this month. Bloomberg writes this is less than a point away from a low in March 2000. Bespoke Investment Group states this figure is not adjusted for a September 2018 index shift that lifted the ratio by 5.1 points in just one day.
If one is a contrarian investor, which is currently synonymous to a value investor, this disparity suggests making money in these sectors is akin to like shooting fishing in a barrel.
Wall Street is known for sectors becoming vastly over owned and under owned, perhaps the result of intense emotionalism. As written many times it appears that almost every strategy has failed for the exception of indexing and chasing the five or six over owned mega sized technology companies, companies that are now massively dominating the indices.
Some have opined the changes in the economy are systemic, equating energy and the financials to the proverbial buggy whip.
I must write I recall similar comments over 20 years ago on the eve of an 80% implosion in the NASDAQ. Will history again repeat itself?
Only the future will answer that question.
Radically changing topics, markets were again spooked by the specter of increased lockdowns. Will society be as compliant as it was with the last shutdown? Will society conclude the last shutdown only delayed the inevitability of rising cases and therefore ignore such orders?
Perhaps the only definitive comment to make about COVID until last Friday it was perhaps the most overriding political factor. Perhaps it still is given that Senator Romney announced yesterday he will support holding a confirmation vote for a new Supreme Court nominee, dealing a blow to Democrat’s hopes of stalling a nominee until Inauguration Day.
Further commenting about politics, many are convinced the political rancor surrounding a Supreme Court nominee will overshadow any stimulus debate.
FRB Chair Powell and Secretary Mnuchin broke no new ground in Congressional testimony, essentially reiterating past remarks the economy has recovered faster than expected but has a long way to go before fully recovering and will need further support, stating the path forward will depend upon keeping the virus under control.
Perhaps of significance was Chicago Fed President Charles Evan’s comment the Fed could raise interest rates before the average 2% inflation target is reached. Was this comment designed to tap back some emerging fears the Fed would not react regardless of underlying conditions? I do not know however the Fed historically permits its leaders to make statements outside of the accepted norm for the simplistic reason to offer potential flexibility as conditions change.
Commenting upon yesterday’s market action, equities led by technologies closed moderately higher, perhaps on the buy on dip mentality.
Last night the foreign markets were up. London was up 2.26%, Paris up 1.81% and Frankfurt up 1.60%. China was up 0.83%, Japan down 0.06% and Hang Sang up 0.11%.
The Dow should open steady. The 10-year is off 1/32 to yield 0.68%.