Monday, June 30, 2008

June 2008 Rewind - Early Summer Swoon

This June, the major U.S. equity indices swooned heavily as oil bubbled ever higher and financial sector woes returned to the fore. The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices recorded monthly losses of -8.60%, -10.19% and -9.62%, respectively; their worst monthly showing in six years.

Indeed, the Dow's 1,288 point drop on cracks in the global growth storey left the index down for three consecutive quarters and in official bear market correction territory (>20%) -- a combined phenomenon not witnessed since the late 1970s.

Interestingly, implied volatility remained relatively moderate even as daily declines, some quite large in magnitude, became the norm. The Federal Reserve's decision to hold key rates level at 2% offered little respite as the inflation warning embedded in its statement took hold. To that end, oil hit record highs exceeding $143 per barrel, up $15 from the start of the month on dollar weakness, supply concerns and growing geopolitical risks seen from Iran and Nigeria.

In related news, the automotive industry took an especially large hit with downgrades on reduced truck and minivan sales. Nevertheless, more than a handful of merger and acquisition announcements were made even as the Yahoo and Microsoft talks failed to bear fruit and not a single Venture Capital-backed deal was brought to market.

Style-Box performance again showed relative strength in the Growth camp, although all areas were very weak. As for sectors, the Financials struggled mightily on downgrade threats and additional write-down worries, while Energy issues posted a moderate gain in the aggregate.

Even a moderate-sized bounce higher would be welcomed here by the Bulls as we face a holiday shortened week and head into the second half of 2008. That said, traders will no doubt be highly cognizant that a "typical" bear market pullback still lies some ten-percentage points below, as measured from the top.

Sentiment: Very Bearish
Volatility: Moderate(VIX 18-24)
Direction: Down

The Style-Box 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 Sector-Ribbon was calculated using the following Select Sector SPDR™ ETFs: Materials (XLB), Industrials (XLI), Energy (XLE), Staples (XLP), Discretionary (XLY), Financials (XLF), Technology (XLK), and Healthcare (XLV). 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.

1 comment:

Bill Luby said...

I have to say it one more time. These are great, Jeff. I'm addicted to the monthly rewinds. Thanks for sharing all your hard work.