The market headlines in 2017 have been dominated by record highs in key indices such as the $DJIA, the $NDX and the $SPX. The great bull market, the fantastic optimism, the new era of investing. You can’t miss out, ever higher prices are coming. Voices, such as myself, who express skepticism are rare and in many cases get a lot of hate by folks who only read the headlines, but not the details or just want to distort.
Below is a chart that I use to keep track of reality. And that reality continues to outline that this is a very select bull market. In fact it’s not a bull market for much of the world. It’s been a great rally off of the 2016 correction lows that were met with record central bank intervention no doubt, but a broader comparison continues to raise questions.
Consider: Since May 22, 2015, almost 2 years ago now when $SPX made a new high, key indices and sectors show a flat performance at best and/or are actually down sizably since then while only a key sectors are up sizably:
The stark outperformance? In select mega cap tech stocks and banks. They alone are largely responsible for most of market cap appreciation in those 2 years.
The global FTSE index, an index that tracks over 7,400 companies in 47 countries, is basically flat on a nominal basis, meaning it’s actually down on a real basis. The US $NYSE index is in the same boat. Yes massive QE intervention and continued low rates and bloated central bank balance sheets have managed to support some market appreciation, i.e. the DAX is up 2% in 2 years. How exciting! Look below and you see energy, retail, the Nikkei all down sizably since then. -9% to -14% as a matter of fact. Long live $AMZN, $GOOG, $FB, etc.
While it’s not a popular message it nevertheless is true: It’s a select bull market in select stocks and due to their heavy cap weighting they mask the actual weakness underneath. And we still don’t know what prices would organically look like without all this intervention.
In light of all this skewed market performance it is then no surprise that 92% of funds are underperforming the indices. The message of the market: Don’t use your brain, don’t use hedging, don’t diversify or you will underperform. And, at the risk of sounding like a dinosaur: That is a very dangerous message to send and heed.
And for this year so far? Again, it is very select:
As I outlined yesterday, banks need a rally, and positive seasonality into late April provides that opportunity. But the global stock universe has a lot to prove. And keep in mind these are the results produced without any sort of correction.
What will all this look like after a sizable correction at some point? I’ll be sure to let you know 🙂
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