Enis’s Macro Wrap – Mutual Funds Rotate From Winners to Losers

by Enis October 12, 2012 7:44 am • Commentary

Here’s a look at the biggest losers in the SPX top 100 yesterday, along with their approximate YTD gains:

  • AAPL -2% (YTD +57%)
  • T -1.8% (YTD +20%)
  • DIS -1.7% (YTD +33%)
  • MO -1.9% (YTD +16%)
  • TGT -2.25% (YTD +19%)
  • COST -3.2% (YTD +17%)
  • TJX -2% (YTD 35%)

Here were yesterday’s biggest winners:

  • SLB +1.9% (YTD +6%)
  • GS +1.6% (YTD +34%)
  • MA +2.3% (YTD +28%)
  • F +1.6% (YTD -5%)
  • MET +2% (YTD +13%)

In the case of the biggest losers, each one was up more than the S&P 500 index on the year.  In the case of the biggest winners, 3 of the 5 were underperforming the SPX index.

Another clear indication of this rotation out of winners into losers was the price action in the homebuilders vs. the coal stocks.  On a quiet news day, homebuilders (one of the biggest winners as a sector this year) were almost all lower more than 1%.  Meanwhile, coal stocks were ripping, up 5-20% in most cases.

October and November are often months when you see big rotations among the big winners and losers year-to-date.  The main reason for such rotation is that many mutual funds use November 1st as their fiscal year end.  As a result, they start to rebalance their winners vs. losers prior to the end of the fiscal year end.  In addition, they look at a clean slate after November 1st, re-adjusting their portfolios accordingly.

I think part of big ytd winners like AAPL’s weakness over the past couple weeks has been related to this phenomenon.  Keep your eye on this rotation as the weeks progress.

Markets overnight:

  • Asia was mixed, with all markets basically within 0.75% of unchanged in either direction.  Europe has also traded in a very tight range around the unchanged mark, close to flat.  SPX futures are trading up about 0.4%, after selling off in the last 15 minutes to close at the lows of the day yesterday
  • Treasury bonds and the dollar are lower, but this has not translated into commodity strength, as most commodities are in the red, with the exception of oil.
  • JPM reported earnings this morning, beating earnings and revenues for the quarter, but providing tepid guidance, as it indicated that credit reserves releases might be near an end, and low rates would continue to pressure net interest margin.  Stock is up 1%.
  • PPI is released at 8:30 am, and UMich Consumer Confidence at 9:55 am EDT