Behind the Stock Market Headlines
Always look behind the headlines, I frequently advise. A good example is the recent news of stock indexes hitting record highs. That’s fine if you’re in the right index fund. But all is not well across the stock markets. Take a look at this analysis from Bloomberg.com. A lot of stocks aren’t participating in the latest leg of the rally. Investors have been very selective. That’s not unusual. Sometimes a lot of investors do better than the indexes, because smaller stocks are doing better than the very large companies that drive the major indexes. Other times, it is the other way around. Take a look at the article and read the details. Different investors draw different conclusions from this trend. To me it doesn’t say much other than that we’re no longer in the early stages of a bull market.
About 47 percent of stocks in the Nasdaq Composite (CCMP) Index are down at least 20 percent from their peak in the last 12 months while more than 40 percent have fallen that much in the Russell 2000 Index and the Bloomberg IPO Index. That contrasts with the Standard & Poor’s 500 Index (SPX), which has closed at new highs 33 times in 2014 and where less than 6 percent of companies are in bear markets, data compiled by Bloomberg show.
The divergence shows the appetite for risk is narrowing as the Federal Reserve reins in economic stimulus after a five-year rally that added almost $16 trillion to equity values. It’s been three years since investors saw a 10 percent decline in the S&P 500 and they’re starting to avoid companies that will suffer the most when the market stumbles, said Skip Aylesworth, a portfolio manager for Hennessy Funds in Boston.
