Stock Picker’s Market Rides On

CAMS Weekly View from the Corner – Week ending 8/21/2020

August 24, 2020

Shortly after the stock market’s climax low in March we began to share the view that we were embarking on a stock picker’s market.  Such environments offer opportunities at the much more micro level of individual stock focus rather than what had become a customary approach of “just buy the market” type of mantra.

While the often cited various indices have performed off the March lows their degrees of performance have been largely determined by how much weight they placed on certain individual stocks.

The often cited S&P 500 is a weighted index – meaning certain stocks impact the performance of the index far more than others.  This index – what is officially known as the “Cap Weighted S&P” has been year-to-date positive for a couple of months now.

Meanwhile, the same S&P 500 Index that is equal weighted – meaning all 500 stocks carry the same weight in the construction of the index has remained negative in its year-to-date performance dating all the way back to late February when the climactic fall began.

Friday’s Stock Market Underlines the 2020 Recovery

While the above focuses on the year of 2020 this past Friday underlines the observation to a tee.

While the often quoted Weighted S&P 500 index closed positive on the day the equal weighted S&P 500 closed negative for the day.

In addition, as an underlining emphasis on this point, the percentage of stocks within the S&P 500 that closed above their 50 day moving average on Friday actually decreased.

This type of negative behavior, when looking deeper inside the S&P 500 statistics, was true on Friday and as a general statement, true for the year 2020.

This while a headline report for Friday’s close stated the S&P 500 closed at an all-time new high which is true for the weighted S&P 500.

Friday’s all-time new high closing type of headline offers a tremendous disparity in the market story-line in terms of the actual health and vitality of the stock market at large.

This is not to offer there is a nefarious distribution of the market news but rather we are highlighting the tremendous differential in the market story-line depending on what you are referencing relative to market commentary.

This type of general story-line is often experienced in a stock picker’s market.

In such a market environment you may be surprised at the differential of performance of various types of investment vehicles which historically were close together in performance.

The key observatory question is will this continue?

We are constantly monitoring the market backdrop with this and many other questions in mind.  At this time we continue to offer our spring season suggestion that a stock picker’s market had began and is currently on trend as a general market environment.  Friday’s behavior, for example, continues to underline our market view.

As we round out the summer season and move into the fall we will begin to refocus on the above through various measures.

Our emphasis resides in the historical fact that a stock market that appears vibrant and healthy via certain indices that are being pushed upward by a relatively small percentage of stocks can turn weak seemingly without notice.  Seemingly that is, when in fact, such as observations noted above, said market had been offering problems deep within it for quite awhile.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.