Sorry for the lack of posts recently. Given the short week and a busy doghouse, time for posts has been scarce. However, after four days since the end of November, we do want to summerize our sector portfolios. With a few exceptions, the momentum continued. Each of the major indicies crossed major round number landmarks. The Dow industrials hit 12 new all-time closing highs during the month, which helped push the index above 16,000. The S&P 500 set its 38th new record of the year and made rose to above 1,800 for the first time ever – surpassing consensus projections of 1750 for this year. While the Nasdaq is still well below its all-time record of 5048.62, set in March 2000, it did manage to surpass 4,000. If the Nasdaq were to remain at Friday’s level through the rest of the year, it would record the seventh best year in its history; if the small-cap Russell 2000 did the same, it would have had its fourth best year ever.
The S&P 500 returned 3.0% in November, marking the ninth positive month of the year. Each of the major indicies recorded gains in the month except the Dow Jones Utility Index which was down 2.5%. So far in December, each index is in the red, except the Utiltity Index.
The SPX is trading just above its resistance, but the RSI may be overbought and the MACD remains flat and elevated, suggesting that it may be overdue for a retracement. However, as we reach the end of the year, it should be noted that since 1926, there have been 32 years in which the S&P 500 total return was more than 20%, and on average it gained 11.5% following those years.
The 10-year Treasury rate finished the month at 2.75% – nearer to the high of the month than the low. Although still off its September 3% near term peak, it remains near a multi-year high. Economic data released in the month had a positive tone. The U.S. economy grew at an annual rate of 2.8% in the third quarter (subject to revision); 204,000 new jobs were added in October; Home prices were up 3.2% in Q3 in the 20 cities measured by the S&P/Case-Shiller 20-City Composite Index and September’s 0.7% increase represented a 13.3% increase from a year earlier, the highest annual growth since February 2006; Building permits rose 6.2% in October; 3% decline in gas prices cut consumer inflation by 0.1%; Retail spending by U.S. consumers rose 0.4%, and retail sales were 3.9% higher than a year earlier; and the Conference Board’s index of leading indicators rose 0.2% in October to 97.5.
Our regular sector analysis provides a glimpse of the market by company type. We evaluate the returns of the largest market capitalization names in three buckets – the 10 largest, 20 largest and 50 largest. A potential nuclear deal with Iran and a possible ramp in production from Iraq has tempered global oil prices. As such, the Energy sector showed decline in the month, but it was the lone standout on the downside. Consumer Staples were mostly flat, but the remaining sectors continued their upward march.
The Consumer Cyclicals continue their upward mo. Retailers like Macy’s, GAP and Coach each saw teen percentage gains in the month. Macy’s (M) beat earnings mid-month (47c v. consensus of 38c, and a 31% rise from the prior-year quarter) and the stock jumped. “The Macy’s number [drove] the market. Their earnings number coming out is supportive as there is a lot riding on the holiday season,” said Chris Gaffney, EverBank senior market strategist. Gap, which reported solid gains in October sales, offered a positive third-quarter outlook, and J.C. Penney reported a main sales barometer rose in October for the first time in almost two years.
#1 ranked Walmart (WMT) also gained 5% in the month, but entertainment companies such as Time Warner (TWX), Fox (FOXA) and Viacom (VIAB) declined.
The Consumer Staples sector was flat for the month after being the top performer for the year through October. Results within the group were a mixed bag – no big ups and few big downs. Among the winners were hedge fund spotlight names such as Herbalife (HLF) and Green Mountain Coffee (GMCR).
Herbalife was up following results at the end of October, but in spite of a new presentation on November 25th by activist Bill Ackman calling the company a pyramid scheme. His 62-page presentation can be found at here.
The market has reacted with a yawn, or even conversely.
Energy has been an underperformer all year, and that trend continued with negative returns in the month. After #1 ranked Exxon gained 4% in the month, only two on the next 13 largest market caps posted gains. Conversely, Financials continue to fly. Only one of the top 25 market caps produced a loss in the quarter, and that was #25 ranked Public Storage (which I struggle calling a Financial company) down 10%. Bank of America, Prudential and J.P. Morgan produced 12%, 10% and 9% gains, respectively.
After a bit of flip flopping performance in the first half of 2013, Technology continues its game of catch up. Micron (MU) powered ahead another 21% in the month – more than tripling since January.
After Micron, Internet-related names such as Priceline (PCLN), Yahoo (YHOO) and Amazon (AMZN) were the top performers up 13%, 12% and 9%, respectively.
With 18 trading days left in the year and two shortened weeks at the end, we are likely locked in for the year. November was a very telling month for returns. Despite solid prior gains and some headline risk, the market moved significantly higher. Most telling this year has been the gains of the “less-fortunate.” Something we will address in a later post, but the names that many would expect to underperform, have actually ripped. The across the board gains have been driven by quality enterprises as well as the over-levered.