The Current Mind of the Market

Here’s another table that explains the point I’ve been trying to make — namely that the stock market is currently being pulled in two different directions by competing theses.

On one hand, you have the view that everything’s fine and the market will rally higher. This will help the cyclical stocks plus the financials. On the other hand, you have the bearish view that only the defensive stocks will thrive.

As a result, each day we get one or the other. Either the financials lead a cylical rally, or the financials get pounded and the cyclicals swoon. The down days are generally worse than the up days.

The following table shows the average move of each S&P sector group based on the last 59 trading days (29 down, 30 up).

Sector Up Days Down Days
Financials 2.15% -2.83%
Industrials 1.84% -2.33%
Materials 1.81% -2.41%
Energy 1.79% -2.39%
Discretionary 1.69% -1.92%
Tech 1.59% -1.70%
S&P 500 1.58% -1.92%
Healthcare 1.24% -1.53%
Telecom 1.00% -1.20%
Utilities 0.97% -0.98%
Staples 0.93% -1.04%

This is the source of the market’s recent volatility. It’s not about risk. Instead, it reflects the market’s internal tug-of-war.

Posted by on October 17th, 2011 at 1:36 pm


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