Mike
Lipper’s Monday Morning Musings
Is
This The Week That Ends Instability?
Editors:
Frank Harrison 1997-2018, Hylton Phillips-Page 2018
I believe it was Lenin who said there are decades when
nothing happens; and there are weeks when decades happen. Possibly, the
four-day trading week beginning this coming Tuesday is such a period. In both the
Financial Times and her podcast, Liz Ann Sonders of Charles Schwab* introduced the
concept of the period we are going through as an extended period of
instability. I am suggesting it is possible the beginning of the end of this
period may have begun.
*Shares held in in managed and personal accounts.
Fund Data Sets the Table
Whether one invests in mutual funds or not, one should
recognize that not only do many people invest in them, but more importantly,
many fund managers get their training at fund shops. Thus, one can get an
understanding of the institutional mind set by looking at fund data. In the
five years ended last Thursday, the London Stock Exchange Group published my
old firm’s weekly study of 105 equity related mutual fund peer-groups average
performances.
The average performance of S&P 500 Index funds was
14.05% compounded for the past five years.
There were only five peer group averages that were better: Precious
Metals Equity Funds +21.50%, Energy MLP Funds +20.79%, Commodities Precious
Metals Funds +18.75%, Natural Resources Funds +17.30%, and Global Natural
Resources Funds +16.05%. There were just
two better performing thematic categories, precious metals and energy. The
narrowness of performance leadership proves how difficult it was to pick
winners for the past five years. The leadership crown was indeed unstable.
Another way to identify the instability in economic data is
to examine the tails of the best and worst 2 items shown in Saturday’s WSJ
weekly price chart. The best was Silver +11.67% and the second best was the
KOPSI +5.55%. The second worst price performance was Financials -2.33%, which
was half as bad as Corn -4.71%, the worst performer. The gaps between the top
two leaders and laggards suggest concentration is at play.
Turning Points Possible Next Week
On Tuesday, probably in the late afternoon, SCOTUS (Supreme
Court of the US) is expected to announce its decision on the IEEPA tariff. The
President has said he is prepared for an unfavorable ruling and has substitute
measures in mind. At best this will be disruptive, and possibly inflationary.
The ECRI industrial price index, which is normally slow moving, rose to 120.49%
from the prior week’s level of 117.42%.
Markets are anticipating problems, either from Tariffs or
possibly Iran. Sixty-two percent of the stocks traded on the New York Stock
Exchange (NYSE) rose last week, while only fifty-three percent rose on the NASDAQ.
The NASDAQ trades more tech stocks and the shares of younger companies. Thus,
the junior exchange is likely to react more than the “Big Board” to news events.
Retail investors, when not gambling, are more active on the junior market. One
possible measure of this is the American Association of Individual Investors
(AAII) sample survey, which reported 49.5% bullish for the next six months, up
from 42.5% the prior week. What may be more significant is the 28.2% that were
bearish. Many professional traders believe “the public” is wrong at turning
points.
The Davos meeting begins Tuesday, with many political and
economic leaders present and chatting. One doesn’t know what will be discussed
and how meaningful the meetings will be.
Keep us Informed as to any Changes in Your Views.
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: How Much Longer Can We Avoid Thinking About the Long-Term? -
Weekly Blog # 923
Mike
Lipper's Blog: Data May Be Signaling Change - Weekly Blog # 922
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