Friday, February 29, 2008

February 2008 Rewind - A Leap Frog Thumping

This February, the U.S. equity indices posted their fourth consecutive month of declines. The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices recorded losses of -3.48%, -3.04% and -5.22%, respectively.

Although there was a seemingly relentless flow of negative news focused on continued write downs among a widening cast of financial players, deteriorating economic metrics, pernicious debt illiquidity, new dollar lows and skyrocketing commodity prices, most of the month was spent playing a random-walk game of "leap frog" with one-day-up, one-day-down, all within a relatively tight trading range.

While it appeared late in the month that the markets were ready to look forward to a recovery theme based on various bond insurer bailout proposals and reassurances from Federal Reserve Chairman Bernanke, the final "Leap Day" brought more negative news than the markets could handle. Together with heavy municipal bond selling by hedge funds seeking to satisfy margin calls, the nascent recovery attempt was finally thumped.

Interestingly, Style Box performance was split, with Small-Cap Value and Large-Cap Growth stocks showing relative strength even as technology shares continued to lead the decline. For the bulls, February's game of "leap frog" was just plain no fun.

The Style Box below was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV).

The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Sentiment: Negative
Volatility: Elevated (VIX 21-30)
Direction: Sideways/ Down


Bill Luby said...

I great little monthly summary, Jeff! I really like this. Of course there are always a few more things I'd love to add to the mix, but this is going to have some nice archival value.

Enjoy the weekend,


Jeff Pietsch CFA, Esq said...

Thanks Bill -- I have this going back to September and find them helpful... it's so easy to get caught up in the "news" du jure with the parade of commentators tailored to fit, I find it helpful to recall the bigger picture. Been very busy lately, hopefully I'll have time to catch up on promised research posts!