Stock market performance round-up: at mercy of grim data

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An avalanche of worse-than-expected economic and earnings data again put pressure on Wall Street during the past month, resulting in four straight down-weeks and the worst performance of the major US indices for January on record.

“As January goes, so goes the year” is one of the most frequently quoted sayings about seasonal trends in the stock market. With the Dow Jones Industrial Index down by 8.8% and the S&P 500 Index 8.6% lower, the year is not off to a promising start.

Despite frantic actions by the Fed and other central banks to unclog credit markets and restore confidence in the world’s financial system, the MSCI World Index and MSCI Emerging Markets Index fell by 8.8% and 6.6% respectively during January.

The performances in the table below are given in local currency terms for different measurement periods ended January 31.

Click on the image for a larger table.

gs-30-jan-09-lc.jpg

From the highs of late October 2007 until the November 20 lows, mature markets have outperformed developing markets, as shown by the declines of 54.1% for the MSCI World Index and 65.3% for the MSCI Emerging Markets Index. The relative-strength graph below clearly shows this outperformance (i.e. declining trend), but the period since the November lows has witnessed emerging markets reclaiming lost ground (i.e. rising trend).

2-feb-1.jpg

In local currency terms, the best-performing bourses since the November 20 lows have been Russia (+23.8%), Oslo (+18.8%) and Brazil (+17.7%). However, the two markets still in the red – Helsinki (-2.2%) and France (-0.2%) – have had much less to cheer about.

Considering the month of January, the top three performers were all BRIC countries, namely China (+9.3%), Brazil (+4.7%) and Russia (+2.5%). Although India closed the month on a strong note (up 8.6% during the fourth week), the Bombay Sensex 30 Index still lagged its BRIC counterparts for the month. The year-to-date performances of these countries, together with the MSCI Emerging Markets Index, are shown in the graph below.

2-feb-2.jpg

Source: StockCharts.com

It should be noted that the Chinese stock market has been closed over the past few days in celebration of the Lunar New Year. It will be interesting to see how this market starts the Year of the Ox on Monday as the chart pattern shows arguably the best base formation of the major market indices. The Shanghai Composite Index (1,991) is also challenging its three-month highs and is within close reach of the roundophobia level of 2,000 for the Shanghai Composite Index.

The gains/declines mentioned above are all in local currency terms. However, converting the movements to US dollar shows a somewhat different picture for the non-dollar countries (see table below). Over the one-month period (US Dollar Index up by 5.8%), the European and emerging-market indices fared considerably worse in dollar terms than in local terms.

Click on the image for a larger table.

gs-30-jan-09-usd.jpg

With the Russian ruble falling out of bed, the Russian Trading System Index declined by 15.3% in dollar terms over one month, whereas it recorded a gain of 2.5% in local currency terms. (Since the November 20 low, Russia has swung from the first position (+23.8%) in local currency terms to the last place (-4.7%) in dollar terms.

Back to the US stock market, the bar chart below (courtesy of Bespoke) shows the performance of the ten S&P 500 sectors in January. Financials were a large part of the overall declines, as the sector had fallen by 26.5%. On the other hand, Utilities and Health Care were the best-performing sectors, declining by only 0.8% and 1.3% respectively.

2-feb-3.jpg

Source: Bespoke, January 30, 2009.

Notwithstanding the improvement since the November lows, it remains too early to tell whether a secular low has been recorded. The chart below shows the long-term trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (or momentum) indicator (blue line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and again since December 2007. Having said that, the level of the indicator is grossly oversold.

2-feb-4.jpg

Stock markets are still caught between the actions of central banks furiously fending off a total economic meltdown on the one hand, and a worsening economic and corporate picture on the other. Failing stronger market breadth and further evidence of the thawing of the credit markets and the world’s financial systems starting to function normally again, investor confidence will probably remain depressed. While I remain distrustful, I am not averse to selective stock picking – picking out the choice morsels, so to speak.

 

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5 comments to Stock market performance round-up: at mercy of grim data

  • Paul C Sandison

    I am afraid the situation is now quite dire. Not because of the sad state of the markets or the world economy in itself. There is not much an individual investor can do about that now. It is the chilling Davos spectacle of the members of the worlds’ economic and political elite behaving like decadent arts celebrities at a weekend prize-giving fest that provides the final evidence that they have absolved themselves of responsibility and have instead perversely chosen to have a last Chuck Prince dance before the ship slips beneath the waters.

    Some of these political and economic have-beens who appeared at the Davos show have their full share in the cause of the economic malfeasance of the last 29 years and should never ever have been there. Instead of focusing on the necessary co-ordination of fiscal measures and rooting out the toxic assets from the banks, whether through nationalisation and re-structuring and re-privatisation as Sweden did in the 1990s or the bad bank-good bank procedure, the discussions have been fraught with meaningless ideological conjecture and frivolent bonhomie.

    The necessary stringent and rigorous economic negotiation has been absent, and the serious co-ordination of both fiscal measures and the restitution of the financial system has not been seriously discussed. What these irresponsible chatterboxes do not understand is that bankruptcy would have been a far better procedure than this everlasting hell of non-action, piece-meal measures, and about-turns the world has seen in the last 18 months.

    The point that Davos is not intended to be a round of bi-lateral agreements does not wash. The economic system has a vital and crucial information feedback loop, which picks up and transmits information on the thought-processes of the elite who (unfortunately in this particular case) control the framework for the economic system. When the information received from a spectacle like Davos shows that the elite is incapable of coming to any sensible conclusion, let alone any co-ordinated plan to take home, the effect will galvanise investors to respond very negatively.

    Then in the US the amazing volte-face by Hank Paulson who did not spend the TARP on what he was given it for has still not led to his indictment or any consequences. It is now quite clear that the US House of Representatives and Senate both past and present do not understand economics, do not really understand how to conduct democratic discussion and achieve true bi-partisanship and have no inkling at all of the urgency with which it should have acted long ago.

    They are still, at this late stage, totally unaware of how time is the conductor of the economy, and that economic time functions in waves with immediate and cumulative exponential power. The response of the elite is so asynchronous as to be useless, and therefore completely destructive in the present context.

    The gap between the unfolding negative developments in the global economy, and the poor understanding and inclination of the elite to do anything serious to address it, is now clear to all. Also, far from the new administration being able to deal resolutely with the partisan malaise on Capitol Hill, it has become clear that the world will merely be exposed to yet more wrangling, less action, i.e. more of the same.

    What this ignorant elite evidently has neither learnt, but may soon learn, is that in any civilisation, grave incompetence that leads to widespread economic collapse will unleash social forces which will destroy both them and the institutions they have abused. In fact their heads are so far into the clouds it would appear that not even the re-appearance of the guillotine would ever focus the minds of these garrulous fantasists.

    The aggregate actions of investors, whether the hundreds of millions of inviduals or the lesser number of institutional investors, control the life-blood of the global economy, i.e. investment-willing capital. When the political elite and the academic economists gang up together in some kind of natural experiment to see how long they can fiddle while the global economy burns to the ground, then no-one, and I mean no-one, should ever be surprised if the investors withdraw their involvement in this macabre death-dance.

    Once a few days have passed for Davos to be digested around the world, the result will not be pretty. Expect the markets to plunge into the abyss by the evening of Monday 9th February 2009.

  • Stock market performance round-up: at mercy of grim data…

    An avalanche of worse-than-expected economic and earnings data again put pressure on Wall Street during the past month, resulting in four straight down-weeks and the worst performance of the major US indices for January on record.

    This post provides …

  • Stock market performance round-up: At mercy of grim data ……

    “As January goes, so goes the year” is one of the most frequently quoted seasonal trends of the stock market. With the Dow Jones Industrial Index down by 8.8% and the S&P 500 Index 8.6% lower, the year is not off to a promising start. ……

  • Excellent work, Prieur. Thanks, as always, for assembling the data.

    Pretty amazing to see every major index in your table down so sharply from their highs. It’s quite a change from the days of 2006 and early 2007 when almost every global share index was in the plus!

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