Yesterday Bloomberg reported 2015 has had more down days in the S & P 500 than any year at since 2002. Moreover the declines have gotten longer and the rebounds smaller, the smallest “post dip” bounce in at least three years.
Bloomberg also reported that last year the S & P 500 posted no retreats of more than three days, compared with an average of six annually in the previous five. Halfway in 2015, the market has endured four declines lasting three days or more. Additionally there has been 69 trading days where the S & P fell, the greatest number since 2002.
Because of the lack of performance, investors have pulled more money from mutual funds and exchange traded funds than any other times since at least 2000 reports Bloomberg. Monies remaining in the markets have gravitated to the largest and most capitalized companies at the expense of all others.
This data should not be a surprise given the performance bifurcation between thetypical stock and the indices. Many times I have commented about this valuation/ownership difference remarking the last time it was so pronounced was almost fifteen years ago. Once through a difficult transition year, the typical company vastly outperformed from 2002-2005.
Will history repeat itself? What is a possible catalyst?
Yesterday I mentioned a Morgan Stanley piece predicting second half 2015 global GDP to rise almost 4.0%, up from 2.9% during the first six months of 2015, greater demand partially predicated by 18 central banks of developed nations still providing additional stimuli.
JP Morgan reports the amount of cash in circulation in the global financial system today totals $67 trillion compared with about $62 million of estimated global demand. JP Morgan writes this happens when the amount of money in the world exceeds the value of the global economy, and individuals/corporations cash in response to risk.
JP Morgan did write the surplus has fallen from a record $7 trillion in July last year, it is still more pronounced than the three prior periods—1990-1995, 2002-2004 and mid-2009 to mid-2010. GDP growth in the above periods was around 3.7%, 3.2% and 2.7% respectively.
Will this cash gravitate to real assets that increase economic output, hence earnings and share prices of the typical company?
As noted above, depending upon the study the last time the difference between the typical company and the index was this great was at least 2002 (Note: I have read reports stating it was 1978 or 1982 depending upon the metrics utilized).
While history is not indicative of future performance, at some juncture excess cash will be utilized in a more productive manner. Is this an outlandish thought? I answer this question with another question. Whoever thought that one week ago Greece would overwhelmingly vote to overwhelmingly reject austerity and only to agree to a more draconian program one week later under the most brutal diplomatic demarches in at least a generation?
What will happen today? Earning season accelerates this week as over three dozen S & P companies post results. How much has Greece, China and the dollar impacted results?
Last night the foreign markets were down. London was down 0.26%, Paris down 0.07% and Frankfurt down 0.35%. Japan was up 1.47% and Hang Sang down 0.41%.
The Dow should open flat. JP Morgan exceeded expectations. Oil is down about $1 on the Iranian accord. Greece at this moment has been moved to the side. Retail sales are posted at 8:30 and tomorrow FRB Chair Yellen testifies in front of Congress about the state of the economy. At this juncture little of change is expected from the FRB Chair. The 10-year is up 1/32 to yield 2.45%.