Comparing the Past to the Present

One of the approaches we use at Bespoke is to look for parallels between the present and the past.  Often we will find that while history doesn't always repeat itself, comparable periods will have similar outcomes.  With that in mind we looked to find years in the past which had the greatest correlation to the present.  Below we highlight the five years since 1950 which have the greatest correlation to 2007, and in each chart we show the S&P 500's performance from 8/27 through the end of that year. Of the five years highlighted, the market finished the year higher from where it was on 8/27 four times for an average gain of 1.64%.  However, we would caution that the one year of negative returns was a painful 10.4%.

Some may recall that we performed this exercise earlier in the Summer, when 1963 had the greatest correlation to 2007.  Since then however, 1963 has become less correlated as the market has been slower to rebound this year from its Summer sell off than it did in 1963.  Another interesting thing to note about the five years highlighted is that like 2007, three of them came in the third year of a Presidential term (1963, 1975, and 1983).

   

Historical Sector Weightings of the S&P 500

Last week we highlighted the current sector weights of the S&P 500.  To expand on that post, we looked at their historical weightings on a yearly basis back to 1990 to see how the makeup of the index has changed.  These weightings and their trends factor in our asset allocation process for our money management services.  The area chart below highlights the historical weightings (%) of all ten sectors.  Slow changes in these weightings offer a good long term picture of the changing economic landscape in the US.  But fast changes in these weightings are a sign that things have gotten out of whack.  It's easy to see technology's big pickup in 1999 and its subsequent drop.  Financials have grown since 1990, but this year their weighting has declined some.  Even still, the sector remains the largest in the index at 20%.  Both the Consumer Staples and Consumer Discretionary sectors have seen their weightings decline over the years.  In the early 90s, the Consumer Discretionary sector was the largest in the index.  It currently ranks fifth.  With the rise in oil prices over the past few years, the Energy sector has also seen its weight increase.  But back in 1990, the sector made up an even larger percentage of the S&P than it does today.

Below we provide yearly S&P 500 weighting charts for each sector.  The blue line represents the actual weight (%) and the red line represents the average over the period.

   

Brokerage Downgrades: It's About Time

Merrill Lynch downgraded three brokerage stocks this morning from Buy to Neutral (BSC, C, and LEH), saying that "08 forecasts appear increasingly unrealistic for most."  We can't imagine that this is a surprise for too many people, and we've been looking for these downgrades for some time now.  Unfortunately, it's usually too little too late when these downgrades come.  Below we highlight the performance of the three stocks since the analyst originally upgraded them to buys.

 

Retail Sales: Eat, Drink, and Be Merry

A look at the year/year change in retail sales (3 month average) shows that since their peak in April 2005, sales have been in a steady downtrend.  When we looked at the subgroups of the aggregate number, we found little in the way of bright spots (click here for charts of each group).  Practically the only groups showing positive trends are Food and Beverage Stores and Bars & Restaurants.

Bespoke Portfolio Analysis

Along with our money management services, Bespoke offers custom portfolio analysis for those looking for professional advice on their equity holdings or any basket of stocks.  Below is an example of the type of analysis we provide to help investors out with their portfolios.  As always with Bespoke, we are able to customize the analysis to provide the specific research you need.  If you would like to learn more about how Bespoke can help with your portfolio, please fill out this contact form and we'll respond to you promptly.

Recent Short Interest Data: What's Wrong With Bleach?

During the quant fund crisis over the past month, some fund managers were forced to unwind both long and short positions as redemptions or deleveraging took place.  The recent short interest data released by the exchanges offers some insight into which stocks saw the biggest decreases or increases in bearish bets over the last month.  The first table below highlights the 25 stocks in the Russell 1,000 that saw the largest monthly decreases in short interest, while the second table highlights the 25 with the biggest increases.  The stock that saw the biggest increase in short interest was Clorox (CLX), rising 367% from a month earlier. 

For those looking for a list of the most heavily shorted stocks, below we provide the 25 stocks in the Russell 1,000 with the greatest shares short as a % of float.  IMB tops the list at nearly 60%, followed by NTRI at 40% and MTG at 32%.  Other notables on the list are homebuilders KBH, NVR and RYL along with RSH, CROX and PCU. 

Best Performing Stocks Year to Date: FSLR, CROX, ISRG Top the List

Below we highlight the best performing stocks in the Russell 1,000 year to date.  As we get closer and closer to the end of the year, the best performing stocks will begin to get mentioned more and more, as money managers take stock of what has done well and what hasn't.  Many managers will want these stocks on the books as of year end, causing them to go up even more.  As shown, First Solar (FSLR) is the only stock in the index up more than 200% year to date.  There are only 8 up more than 100%: FSLR, CROX, ISRG, AKS, OI, FWLT, WNR and AMZN.

Russell 1,000 Stocks Furthest Above and Below 50-Day Moving Average

Currently, just 34% of the stocks in the Russell 1,000 are trading above their 50-day moving averages.  The average stock in the index is 2.71% below its 50-day.  Below we highlight the 20 stocks trading furthest above and below their 50-days.  On the positive side, VSEA is the most above at 26.89%, followed by GPS maker GRMN, Las Vegas casino WYNN, and robotic surgical company ISRG.  On the negative side, mortgage insurer RDN is the most below its 50-day at -46.65% followed by Thornburg Mortgage (TMA) at -42.74%.

S&P 500 Out of Downtrend?

At the start of the month, we had seen three consecutive Fridays with large declines, indicating investors didn't want to take any risk over the weekend.  The sentiment heading into the weekend has become more positive recently, however, and Friday's market gains moved the S&P 500 out of the downward trend channel it had been in since the index peaked in July.  As shown below, the index broke above the top of the channel to close at 1479.37 last week -- a positive sign for technicians.

Bespoke Readers Slightly More Bullish

Throughout the recent period of market uncertainty, large declines, and snapback rallies, Bespoke readers have remained mostly Bullish in their views on the S&P 500. The lowest Bullish reading since we started the poll in early July has been 51% and the highest has been 63%.  Last week, readers were 57% Bullish and 43% Bearish.  Please take a moment and let us know your current view on the S&P 500 by voting in the Bespoke Market Poll below:

My current view on the S&P 500 is:
	Bullish
	Bearish
Free polls from Pollhost.com

Stock Markets and the Week Before Labor Day

Now that the week before Labor Day is here, we're reposting this info that we noted last week:

With Labor Day coming up on September 3rd, we looked at the historical performance of the Dow Jones Industrial Average in the week before and 4-day trading week after Labor Day.  As shown below, the week before Labor Day has typically been much stronger than the week after.  The median performance of the DJIA in the week before Labor Day since 1901 is 0.44% and 0.64% in the last five years.  While the performance in the week after Labor Day is much more muted than the week before, it has been getting better in recent years.

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5,000 -- Not Such a Good Number for the Nasdaq. How Will China React?

Upon seeing China's Shanghai Composite break through 5,000 recently, we were reminded of another index that went through 5,000 after quite a bit of a run back in 2000.  Below is a price chart of the Nasdaq and the Shanghai Composite since 1995.  As shown, 5,000 only lasted two days for the Nasdaq before the index declined all the way down to 1,114 by 10/9/02.  Looking back, it's amazing how steep the ascent for the Nasdaq was, and the Shanghai's ascent has been even steeper!  After today, the Shanghai Composite has now been above 5,000 for two days as well.  Let's hope China's markets can hold up a little better than the Nasdaq did.

Long-term, homebuilders still beat the stock market

We recently did a B.I.G. Tips report looking at the declines in the S&P 1500 Homebuilder index from its peak in July 2005 and comparing them to the popping of the Internet Bubble.  One chart from the report that we have made available below is a simple comparison of the returns between the Homebuilder index and the Nasdaq since the Homebuilder index began back at the start of 1995.  The simple chart highlights some very interesting points:

• With so many comparisons lately between the current period and the '98 Russian debt/LTCM crisis, the chart shows how the two indices began diverging right as the '98 crisis was unfolding.  The tech heavy Nasdaq exploded while the Homebuilders and most other sectors continued to struggle.  This backs the bullish case for those that are currently looking for large cap tech to outperform.
• The Homebuilders bottomed just four days after the Internet Bubble popped (3/14/00 vs 3/10/00).  Investors basically moved from one bubble to the next.
• Surprisingly, the Homebuilders went up more during their bubble than the Nasdaq did during its bubble.  When the Homebuilders peaked on July 20th, 2005, they were up 964% since March of 2000.
• Finally, while both rose sharply only to eventually give up quite a bit of their gains, a long-term investment in either of the two indices at the start of 1995 would still have produced gains of at least 230% today.

And We Question The Quality of Chinese Exports?

China has been all over the news in recent weeks as questions arise over the quality of their exports to the US.  Whether it be pet food or toys, many Americans are beginning to think twice when they see the "Made in China" label.  But Americans should be aware that exporting goods of questionable quality isn't a one way road.  Over the last two days, several Chinese banks have disclosed holdings of perhaps one of the crummiest exports in recent history - US sub prime mortgages.

Bank of China reveals sub prime exposure