Friday, January 2, 2009

December 2008 Rewind - Holiday Cheer...?

By the end of a month featuring ever declining volatility and a relatively benign close, it was easy to forget that December began with the fourth worst trading day in the history of the markets and some of the worst economic news recorded in a generation.

This December, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices posted mixed results of +0.78%, -0.60% and +2.18%, respectively. For 2008, that left the indices down -38.49%, -33.84% and -41.89% from their respective 2007 closes (-36.79%, -32.44% and 41.73% with dividends), capping off the worst annual market performance since the 1930s.

However, on balance sentiment for the period was characterized by an increasing sense of optimism for the new year and change of leadership as the Obama administration filled out its economic team, the Federal Reserve cut target rates to historic lows, and an automotive bailout was ultimately engineered by the Whitehouse after a failed Congressional attempt.

All this was against an otherwise extremely negative news cycle, including relentless corporate layoffs, the highest reported unemployment rate in 15 years, an official NBER recession call, dismal auto sales, the Madoff scheme, and numerous overseas conflagrations. In spite of the global tensions, oil actually moved down to the low $30 per barrel range on stockpiling and the weak economic news. Likewise, the VIX (implied options volatility) ended the month at 40 after being nearly double that only a short while ago.

Style-wise, Value stocks strongly outperformed, while Sector-wise, Healthcare and Consumer Discretionary stocks moved higher as Energy, Material and Financial stocks finished lower. While we are off to a great start here on the first trading day of 2009, we are coming into the year highly overbought on a near-term basis. That said, we have a full 250 trading days ahead of us -- here is wishing you a happy and profitable 2009!

Sentiment: Optimistic
Volatility: Declining (VIX 40-68)
Direction: Mixed

[Click to Enlarge/ Additional ETF Analyses Posted on Market Rewind]

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.

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