Thursday
May152008

2008 Country Returns

Below we highlight stock market performance for 86 countries (local currency).  So far this year, 30 out of the 86 country indices are up, while 56 are down.  Ghana is up the most at 44.67%, followed by Oman, Qatar, Jordan, Puerto Rico, Kuwait and Costa Rica.  Vietnam, Bulgaria, China and Romania are down the most.  The S&P 500 is down 3.05% on the year, which ranks 37th on the list.

Countryreturns515

Below we provide a chart of the best and worst performing countries in 2008 -- Ghana and Vietnam.   

Ghanavietnam 

Thursday
May152008

A Look at Q1 Hedge Fund Holdings

Below we highlight the cumulative sector weights of hedge funds based on their first quarter 13Fs (from Bloomberg).  As shown in the table below, Financials make up the biggest portion of hedge fund portfolios, just as they do in the S&P 500.  Energy ranks second, Technology third, and Industrials fourth. 

In the first chart below, we highlight the changes in holdings in the first quarter versus the fourth quarter of 2007.  Hedge funds increased their weight in Energy the most and decreased their weight in Technology the most.  Tech was one of the worst performing sectors in Q1, but it has been one of the best performers so far this quarter.

Comparing hedge fund weightings to the S&P 500, hedge funds are most overweight in the Materials sector and the most underweight in the Consumer Staples sector.

Hfholdingstable

Hfholdingschg

Hfholdings

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.   

Thursday
May152008

Farm Bill and Oil Prices

After being up over $2 in the morning, oil has reversed course and is trading sharply lower (over $5 from the high) in early afternoon trading.  This may in part be related to the Farm Bill that was passed earlier by the US Senate by a vote of 85 to 15.  As a result of the strong support for the bill, even if President Bush dusts off his veto pen, the Senate will have the necessary 67 votes to override the veto.

So why is the Farm Bill impacting oil prices?  One of the amendments to the Bill is called the "CFTC Reauthorization Act of 2008," which will put "all significant energy trades on electronic platforms within the regulatory confines of the Commodity Futures Trading Commission, and will impose limits on the size of traders' positions to prevent excessive speculation" (WSJ).  Presently, not all US exchanges are subject to the rules of the CFTC (Intercontinetal Exchange is one of the larger examples), and as a result, there are some who claim that speculators are using these non regulated exchanges to run up the price of oil.  These same people claim that the CFTC Reauthorization Act of 2008 will put a stop to this and cause oil prices to trade down to more realistic levels. 

Oil_farm_bill

Thursday
May152008

Clean Energy ETF (PBW) Holdings

PBW is an ETF that holds companies in the "business of the advancement of cleaner energy and conservation."  We've gotten quite a few requests recently about alternative energy plays, so we thought we'd publish a list of the stocks that make up the Clean Energy ETF.  For each stock, we include its sector, price, year-to-date percent change, estimated '08 PEG ratio, relative P/E ratio (to the S&P 500), and weight in PBW. 

Many alternative energy plays are still very speculative and have either very high valuations or no earnings at all.  Clearly not every company in this list is going to make it, and that's what makes holding the ETF and not trying to pick individual names so appealing to investors.  With oil up so much this year already, it's surprising to see that only 24% of the stocks that make up the ETF are up on the year.  FSYS, GU, ENER and MXWL are all up more than 50% this year, but three of the four don't even have earnings.

Pbw

Thursday
May152008

Bullish Sentiment Increasing

This week's investor sentiment readings from Investor's Intelligence and the American Association of Individual Investor (AAII) both show similar levels of bullishness in the mid-forty percent range, which is well above the highs from earlier this year.  While the Investor's Intelligence number is at its highest levels since January, it is still below its average of 50.7% since 2003.  The AAII number, which is generally considered to be more erratic, is actually slightly above its average reading of 43.3% since 2003.  So while both of these indicators are near their highs for the year, their implication for the market is neutral.

One of the interesting longer-term trends that has formed in the AAII weekly report is that over the last five years, bullish sentiment has been in a steady downtrend.  In 2003, bullish sentiment peaked at 79%.  Then in 2004, the peak reading was 70%.  In 2005 and 2006, bullish sentiment peaked at 59% in both years, while in 2007, the bullish sentiment topped out at 58%.  Finally, so far in 2008, the peak bullish reading has been 53%.  Typically, as a bull market ages, you expect to see bullish sentiment increasing and not decreasing.  However, the most recent bull market has been characterized by investors reigning in their horns.

Sentiment

Thursday
May152008

Percentage of Stocks Above 50-Day Moving Averages

Currently, 77% of stocks in the S&P 500 are trading above their 50-day moving averages.  As shown in the one-year chart of this indicator below, 77% is an overbought level and it usually doesn't last long without seeing a pullback. 

On a sector basis, Energy and Telecom top the list with 89% of stocks trading above their 50-days.  Technology is at 87% and just broke to a new one-year high.  Health Care and Consumer Staples currently have the lowest percentage of stocks above their 50-days, as investors have shunned defensive sectors over the last month or so.

Spx50day

Finlindu50

Inftenrs50

Condcons50_2

Hlthmatr50

Utiltels50

      

Wednesday
May142008

1990 All Over Again?

In the aftermath of the crisis in the credit markets, many economists have said that the US economy is facing the worst recession in the post WWII area.  While the ultimate outcome of the current period is anyone's guess (many are now doubting we will even end up with a recession), we wondered whether investors and economists tend to think every recession (or even period of economic weakness) is the worst ever as they are going through it, and then once it's over say, "Oh that wasn't so bad after all." 

For example, the 1990 recession is considered by most to have been pretty mild.  But at the time, people thought it was a lot worse.  For example, in February 1992 - almost a year after the recession ended - US News and World Report said that, "The current downturn is different. Many cash-strapped homeowners whose houses have fallen in value won't be able to take advantage of the refinancing bonanza promised by the Fed's rate cut. So far, unemployment remains lower than it was a decade ago, but this recession isn't over yet, and the economy's glaring structural problems will stifle growth and new jobs."  US News went on to say that the recession would be "unlike any the country has experienced in the post-World War II era, the result of years of profligacy and irresponsible government policies."  Sound familiar?  For those interested, we highly recommend reading the entire article to see just how negative sentiment was leading up to one of the greatest decades of growth in American history.

In fact, if we were to compare the 1990 period to today, there are many similarities.  As just an example, in each period, the dollar was weak, inflation was on the high side, oil spiked, and credit markets were under stress.  In both periods there was even a George Bush in the White House! With these similarities, it comes as little surprise that the performance of the stock market has been similar during both periods.  In the chart below, we overlaid the S&P 500 in the current period (since October 2007) with the period from June 1990 through June 1991.  As the patterns show, for the last six months, the two periods have tracked each other closely.  While this is not meant to imply that the S&P 500 is poised for a monster rally, the correlation between both periods is certainly worth noting.

19901991

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke. 

Wednesday
May142008

S&P 500 Historical Trailing 12-Month P/E Ratio

The trailing 12-month P/E ratio recently reached its highest level since February 18th, 2004.  As shown in the first chart below, since bottoming at 16.42 on August 15th, 2007, the P/E ratio has risen 43.3% to 23.53.  P/Es typically expand when the market rallies and contract when the market declines.  In recent years, however, the trend has reversed.  From 2004 to 2007, earnings expanded at a faster pace than price, even as the market rallied.  Since the market peaked in late 2007, however, earnings have slowed and P/Es have risen sharply.

Trailingpe1

A chart of P/E ratios going back to 1960 highlights the massive expansion in valuations from 1980 through 2000, which culminated in an extremely high ratio caused by the tech bubble.  The historical average since 1960 is 17.87.

Trailingpe

 

Wednesday
May142008

Q1 S&P 500 Group EPS Growth

With 92% of the S&P 500 having reported first quarter earnings, below we highlight year-over-year growth numbers for the major groups of the index.  Groups highlighted in green saw earnings growth, while those highlighted in red saw earnings declines.  The index as a whole has seen earnings decline by 16.9% versus the first quarter of 2007.  Only 6 of the 24 groups saw earnings declines, however.  These declines came in banks, diversified financials, insurance, real estate, consumer durables & apparel and retailing.  No surprises there.  The biggest gains in earnings came in automobiles & components (which had a low starting point), energy, software, tech hardware, materials and media.

Groupgrowth1_2

Groupgrowth

   

Wednesday
May142008

Overbought and Oversold ETFs

In our daily ETF Trends report at Bespoke Premium, we provide proprietary trend and timing scores on more than 200 ETFs across all asset classes (international and domestic stocks, commodities, currencies, fixed income, etc.).  Below we highlight the ETFs from our database that are currently trading the furthest above and below their 50-day moving averages.  As shown in the first table below, oil and oil stock ETFs like DBE, XES, USO, DBO and OIL top the overbought list.  These are followed by steel stocks (SLX), Brazil (EWZ), and other energy and materials names.

Ironically, while energy ETFs are the most overbought, gold and silver ETFs are the most oversold.  We did a B.I.G. Tips report on the recent divergence between the price of oil and gold and found that it doesn't happen often.  Since both are inflation hedges and are typically correlated, it will be interesting to see which way the two trade going forward. 

Most of the other ETFs on the oversold list are fixed income names, but currency ETFs that don't include the US dollar also show up on the list for the first time in awhile.

Etfsabove_3

Etfsbelow

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke. 

Tuesday
May132008

S&P 500 Holding Uptrend

Even after a little back and forth action over the past couple of days, the S&P 500 has managed to hold its uptrend and remains above key support at the 1,400 level.  The index is currently down 4.45% year to date.

Spxtrend

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Tuesday
May132008

Apple (AAPL) Rally Redux

Since bottoming in March at $119.15, Apple (AAPL) has rallied 60% over the last 55 trading days to $190.  This rally looks almost exactly like the gains Apple saw over a 58 trading day period from August 16th to November 6th, when it went up 64% from $117 to $192.  On a closing basis, Apple peaked at $199.83 on December 28th, 2007.  We put the stock in our Model Portfolio at $131 on March 19th and exited the position at $185 on May 6th.  Apple definitely has some wind at its back these days, but as the stock approaches $200, it should be met with some selling pressure.

Aapleprice

Tuesday
May132008

Retail Sales For April

While the headline number for today's retail sales report was inline with expectations (-0.2%), the ex-autos number came in stronger than forecast (+0.5% vs +0.2%).  In order to see where the strength and weakness came from, we broke out today's report by category to see which groups have seen the biggest increases and decreases in their share of the total retail sales pie.  As shown, over the last year the categories that have seen the largest increase in their share of retail sales are Gas Stations, Food and Beverage Stores, and General Merchandise.  These groups are all purveyors of non-discretionary items, indicating that rising inflation is causing consumers to spend a larger share of their disposable income on necessities. 

Groups that have seen the largest decrease in their share of total retail sales include Motor Vehicle and Parts, Building Materials, and Furniture.

Retail_sales_by_category_2

While retail sales rose 2% on a year/year basis, after adjusting for inflation, sales actually declined by 1.9%.  In fact, this month's decline marks the fifth straight monthly year/year decline.  This is the longest streak of monthly declines in the last fifteen years.

Retail_sales_by_category_vs_consume

Subscribe to Bespoke Premium today.

Tuesday
May132008

Where's the Volume?

Below we highlight a price and 1-month average volume chart for the S&P 500.  Many market participants have been questioning the rally due to a lack of volume.  While it is noteworthy that volume has declined, we'd note that volume is typically lighter when the market is going higher and heavier when it's going lower.  Current volume levels seem much lower than normal because of the spike seen during the credit crisis from July '07 to March.

Pricevolume

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Tuesday
May132008

Consensus Economist Estimates

As a follow-up to yesterday's post on Bloomberg's monthly survey of economists, below we highlight their consensus GDP, CPI and Fed Funds Rate estimates.  In the first chart and table below, we highlight the median GDP growth forecasts from 65 economists surveyed.  We also provide their median estimates monthly going back to the start of the year.  As shown, estimates have ticked lower each month, with the exception of a 10 basis point increase in Q2 '08 GDP estimates this month.

Gdpest_2

Consensus CPI estimates for the second quarter remained the same this month at 3.7%.  They ticked slightly higher for Q3 '08, lower for Q4 '08, and higher for Q1 '09.  Economists also increased their expectations for the Fed Funds Rate by 25 bps for the next 3 quarters after a month of market stability and signs that inflation is now a bigger concern than it was.

Cpiest

Fedfundsest

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.