23 May SOME SOBERING STATISTICS
The S & P 500 is almost officially in a bear market defined as a drop of 20% or more. Friday’s decline is part of a seven-week slide which is qualifies as the longest weekly decline since the dot.com bubble bursting in 2001 according to Bloomberg. According to CNBC, this is the longest weekly decline for the Dow since 1924.
The only S & P 500 sector that is positive for the year is energy…up 43%. Consumer discretionary stocks, which AMZN is a component of, is down 38% YTD.
The NASDAQ is down about 28% YTD and about 30% from its apex. Goldman’s list of the twenty-five most widely owned stocks is down over 55% YTD.
Some are beginning to ask how could Wall Street analysts be so wrong as the must own growth names have been decimated in the face of bullish forecasts?
Monday May 2, I referenced Bloomberg data that GOOG, one of the largest companies in the world is the only company that every analyst had rated as buy…54 buys and no holds or sells. AMZN is/was the second highest rated stock…57 buys, 1 sell and one hold.
Year to date GOOG is down 25% and AMZN 36%. From their apex the shares are down 28% and 43% respectively.
As written many times, a major issue at hand is that everyone owns these shares and when selling commences who is left to buy? What is perhaps a contradiction, in my view in a mere four months there are several must own growth stocks that can now potentially be viewed as value shares given their precipitous drop.
Returning to the 2000 dot.com analogy, according to Friday’s WSJ, before Friday’s decline eight stocks accounted for 7.84% of the S & P 500 decline while the remaining 492 accounted for 9.37%. In 2000 the carnage was more widespread. A major difference between today and 2000 is the massive concentration of funds in a few names that greatly skewed the indices.
As written many times, passive indexing became the strategy versus a strategy. The operative question is the duration of the upcoming distribution cycle, or the time it takes for positions to be completely unwound. If history can be used as a guide, the distribution cycle it typically twice as long as the parabolic cycle.
What will happen this week?
The economic calendar is comprised of several housing statistics, revised GDP, inflation data and a sentiment survey.
Last night the foreign markets were up. London was up 1.09%, Paris up 0.33% and Frankfurt up 0.84%. China was up 0.02%, Japan up 0.98% and Hang Seng down 1.19%.
Futures are about 1% following weeks of relentless selling. Some are pointing to the President’s comments that he is considering reducing tariffs on some Chinese products as the catalyst. The 10-year is off 13/32 to yield 2.87%.