USA Takes The Gold In Stock Market Performance

After declining for the first four days of the week, the S&P 500 rose 2% on Friday to finish the week at 1,390 – only 32 points off it’s multi-year high.  A slightly better than expected Jobs report and a better than expected ISM non-manufacturing report triggered the nice gains in the S&P 500 on Friday.  Also contributing to the gains were positive performance of the European markets.   The European Markets continue to be mostly driven by the performance of the Euro and the latest commentary (or lack of commentary) by officials from European Central Bank.

Below is a 9 month chart of the S&P 500.  As in prior weekly commentaries, we continue to use November, 2011 as the start point for this chart because November, 2011 was the bottom of the most recent significant market correction.

November, 2011 was also the time when the USA Stock markets began to Outperform the Rest of the Worlds Stock Markets for the first time in over a decade.  We explore this topic in more depth below.

On this chart we have drawn was is known as a Trend Channel.  This Trend Channel illustrates how since June 2nd, the S&P 500 has put in a series of Higher Highs & Higher Lows.  This chart pattern is generally recognized as a short term positive indicator for higher prices.

 

(Click on Image of Chart for a Bigger Picture)

 

November 2011 – When the USA Took The Lead Back From the Rest of the World

We would like to use this weeks market commentary to present to our readers our observations of the performance of the USA Markets as compared to the Rest of The World St0ck Markets and how everything changed in November, 2011.

Starting in the year 2,000, many readers will remember the ‘Tech Bubble” and the Nasdaq and overall stock market crash that lead to an economic recession from 2000 – 2003.  The USA Markets were not the only markets that crashed- most of the develop worlds stock markets also experience a significant correction and a resultant economic recession.

The bottom for the USA Stock Markets and the Rest of the World stock markets was hit in March, 2003.

Now for the 10 years prior to 2003, the USA Stocks Markets significantly outperformed the Rest of the World Stock Markets.

However – Beginning in 2003 – the Rest of the World Stock Markets began to significantly outperform the USA Stock Markets.  This was the start of the rotation of money away from from the USA and other Mature economies.  The new investment themes that began in 2003 encouraged  investors to shift their money to investment in China, Resource based economies (such as Brazil, Australia, Canada) and emerging market economies.

Below is a chart that starts at the market bottom in 2003 and ends at the beginning of the great financial crises in 2008.  The chart compares the performance of the S&P 500 (in Red) versus the Composite of The Rest of the World Stocks (in Blue).

 

(Click on Image of Chart for a Bigger Picture)

 

From the market bottom in 2003 to the beginning of the Worldwide Financial Crises in 2008:

  • The Rest of the World Stock Markets gained 150%
  • The USA Markets only gained 70%

The Financial Crises of 2008 – 2009 resulted in a significant correction all stock markets world wide.  The Stock Markets across the globe  generally found their bottoms in March of 2009.

Now, coming out of the financial crash in 2009 – both the USA markets and world markets were experiencing gains and losses in equal amounts – no longer was the Rest of World Stock Markets outperforming the USA Markets as they were from 2003 – 2008 as the chart above illustrated.

However, beginning in November 2011, something changes.  For the first time in over 10 years, The USA Stock Markets began to outperform the Rest of the World Markets.  This out-performance by the USA Stock Markets  – beginning in November, 2011 – is by a significant amount as the chart below illustrates  (Note – USA Markets are in Red and Rest of World Markets are in Blue):

 

(Click on Image of Chart for a Bigger Picture)

 

It appears that the markets have accurately forecast today’s economic condition that we have been commenting on for the past few months.  That condition is a healthier USA economy as compared with the European, Chinese and emerging market economies who are all experiencing either decline in economic growth and\or outright recessions.

Now the question is how will this gap in performance be resolved?  Will the USA Markets sell off or will the Rest of The World Stock Markets follow the USA Markets lead and start to move higher?

 

Forecast for the Next Week

As noted in the chart above, the S&P 500 has put in a series of  higher highs and higher lows – technically this is short term bullish for equity prices.   However, the advance\decline line for stocks is showing fewer stocks participating in the most recent rally as Big Cap Stock, Dividend Paying Stocks & Defensive stocks are the companies that are powering the most recent move higher.

Earnings Season in coming to a close.  And while most companies are meeting their bottom line expectations, only 48% are meeting their Sales expectations.  The 48% is the lowest number since 2008.  We give a lot more weighting to the Sales results then the profit results of corporate earnings because profit results are much more easier to manipulate than Sales results.

While technically we like the short term prospects for the markets, we still think that now is a better time to be trimming portfolios and not adding to them.

With the S&P within 3% of it’s post 2008 highs, and with the rest of the world and USA economies weakening, we continue to recommend that investors use this strength in the Markets to strategically raise cash.

 

 

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  • Reliance Investment Management LLC is a Registered Investment Adviser in the State of Washington. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.
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