U.S. Largecap Sector Relative Fair Values: Wednesday, August 31, 2016
Significant Changes Since Last Week:
We finally made it; sort of. The market gave up 0.5 percentage points and moved back below 100%FV to 99.5%FV. This type of one-step-forward, one-step-back has been occurring ever since The Great Recession. We do not mind the slow-n-steady movement because it has been to the upside over the longer term, but it does require patience. Third quarter economic expectations and consumer expectations are all supporting a continuation of the same slow progress which is reasonable for a healthy market.
The biggest gain in relative fair value was in the Financials sector with a gain of 1.2 percentage points. The move back closer to 100%FV that started last week continued in the Utilities sector with a reduction in relative fair value to 107.9% from 110.6%. The only other sector to gain on a relative basis was Telecommunication Services but with a slight gain of 0.3 percentage points to 105.5%FV.
Midcap capitalized stocks remain in the lead at 107.3%FV followed by Smallcap stocks at 102.8%FV both remain well above 100%FV and in excellent position to continue adding value over the next 12 months. It is reasonable to expect the Largecap market to reach 20,000 by this time next year.
There was very little movement in relative position of either the Mid or Smallcap index but there was some significant movement within the individual sectors. The big positive gain was in Financials just as in the Largecap category. This sector moved up 1.4 percentage points to 109.3%FV. This places Financials tied for third place amongst the ten sectors.
Financials also gained in the Smallcap category but was not the leader. Credit for that accomplishment was given to Energy with an advance of 4.1 percentage points. Smallcap energy stocks have been struggling for the past year as energy raw material prices dropped so low that many of the smaller companies struggled with margins and leverage. It is not easy to weather the storms of fast passed crude price changes.
U.S. Allcap Industry Relative Fair Values
Industry group changes reflected much of what was experienced in sector changes for the week. Financial enterprises gained across much of the industry with Banks gaining 2.5 percentage points, Diversified Financial gaining 1.3 percentage points and Insurance gaining 1.9 percentage points. The largest retrenchment was in Pharmaceuticals & Biotechnology with a drop of 2.3 percentage points.
Food Beverage & Tobacco remains on top at 109.0%FV followed closely by Real Estate at 108.9%FV and the bottom is being carried by Transportation at 93.7%FV. This comes as no surprise as the worst performing stock in the market is an airline and most of the rail carriers are recovering from the previous drop in energy related transportation slowdowns.