CAMS Weekly View from the Corner – Week ending 8/28/2020
August 31, 2020
We shared in our previous edition that as the summer turns to fall we will be digging deeper into our stock picker’s market theme that has radiated from the stock market as 2020 has unfolded.
There are several uses for such a big picture observation. We will focus on two of them.
The first is to monitor the on-going theme to see if it is getting more pronounced which can be an early sign of near-term market trouble. Simply, when fewer and fewer stocks are giving tremendous upside while more and more are unable to perform, it offers the potential for a stock market that is riding on fumes.
The second is to know the theme continues to be in-play so we know to remain more focused in our asset allocating rather than the “own the entire market” view, which offers notable under-performance in such a market environment.
In 2020, when we have entered into the topic of our stock picker’s market observation we have attempted to keep it as simple as possible by focusing on two versions of the S&P 500.
The traditionally referenced S&P 500 is a weighted version meaning certain stocks within the index impact the performance results more than other stocks.
Another version is the equal weighted S&P 500 which gives all 500 companies the same weight which means they all impact the results the same. One company does not, by weight, have a larger impact than any other company within the index.
With the above offered as a general backdrop, the two S&P 500 indices have actually accentuated the stock picker’s market theme for the bulk of August.
Click For Larger View: http://schrts.co/zGHRdfER
The chart represents the two versions of the S&P 500 thus far in 2020. The top (black) line is the traditionally referenced weighted version while the lower (blue) line is the equal weighted version.
The interaction of the two offers two stand-out observations.
First, by looking at the chart in its wholeness we can clearly see the tremendous change in the relationship of the two from the front-part of 2020 on through as the year progressed.
Second, by focusing on the red line highlight of each index we can see the trend differential has grown notably as August has unfolded. In recent trading days the weighted version posted the largest gap between the two thus far for the year. This tremendous differential underlines our stock picker’s market observation.
Very interestingly, late last week we observed behaviors that may be offering the much broader stock market may want to kick into gear. This is a very early observation that can disappear as quickly as it appeared. Nonetheless, it has surfaced a bit for now at least.
In its simplest form we can also point to this on the chart above with the equal weighted S&P 500 (lower line) depicting a small uptick out of its doldrums for the month of August.
If this can continue it will be much needed under the banner of “internal market health” because, as shared, this stock picker’s market theme is beginning to get extreme in its out-performance. Such extreme’s can continue far longer than most would suspect but the more extreme it gets the more simultaneous caution we would offer.
For now at least, we are beginning to see some broadening which is a good thing and much needed at this market juncture.
I wish you well…
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
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.
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