Sunday, May 3, 2009

April 2009 Rewind - Spring Thaw

The spring thaw continued for another strong month of gains that finally left a handful of equity indices bullishly above their ten-month moving averages for the first time in nearly a year. This April, the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices rose +9.39%, +7.35% and +12.72%, respectively. For the year, that still left them mixed at -3.37%, -6.93% and +15.08%, respectively.

The monthly price action was characterized by consistent strength from start to finish with hardly a pullback even while climbing a clear "wall of worry" featuring Swine (H1N1) Flu fears, the GM Bankruptcy, a focus on Banking "Stress-Tests", and a worse than expected GDP report, among others. Instead, the market chose to focus on the "slowing of the decline" thesis, a number of merger and acquisition announcements, and earnings "beat ratios" back near historical levels (say 60-65%), suggesting to some that expectations may have finally neared reality.

Sector-wise, a handful of ETFs posted astounding near 20%+ performances, including the Financials (XLF), Industrials (XLI) and Consumer Discretionaries (XLY), while Style-wise, the Small- and Mid-Cap Value areas (PWY/PWP) led the charge. In contrast, the year's earlier out-performer, Healthcare (XLV), struggled with a -0.1% loss. In spite of the mixed performances on a year-to-date basis, the recent out-performance of the higher-beta indices certainly reflects an increased willingness to accept risk. "Sell in May" tautology aside, it will be interesting to see how the markets perform after these two exceptional months. Can the markets pull off a hat trick going into the Summer?

Sentiment: Mixed "Wall of Worry"
Volatility: Declining (VIX 35-42)
Direction: Higher

[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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