Yesterday’s 2%+ ripper was the biggest single largest percentage move higher in the SPX index since January 2nd, 2013, which also happened to be due to the fiscal cliff resolution. That was also a 36 point move, but 2.54%, vs. yesterday’s 2.18%, given the much higher level in the index today.
The clever crew at Bespoke had a nice post summarizing the nature of yesterday’s move among individual stocks:
Any time the market has a big up day like it’s having today (so far at least), you inevitably hear that it’s a “short-covering rally.” We’ve already heard it multiple times on the financial news networks, so we checked to see if this is actually the case or if it’s just a cop-out explanation.
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You can see in the chart that the five deciles with the lowest short interest are outperforming the five deciles with the highest short interest, so this definitely doesn’t appear to be a short-covering rally.
What’s really happening today is investors are buying up the stocks that got hit hardest over the last few days. When we broke up the Russell 1,000 into deciles based on performance from 10/4 to 10/9, we found that the decile of stocks that were down the most over this time period are up more than any decile today by quite a bit. Conversely, the stocks that went down the least from 10/4 to 10/9 are up the least today.
The stocks that were hardest hit in the past week were generally the stocks that were the best performers year-to-date. In other words, the market leaders. The Nasdaq 100 leaders, like TSLA, NFLX, and the biotech, solar and internet stocks were battered. Yesterday’s snapback saw the sharpest moves in names like NFLX, FB, QIHU, GRPN, BBY, GME, GILD, and BIIB.
But the performance chase among portfolio managers showed up in broad sector moves as well, not just single stocks. The best performing sectors were financials, industrials, health care, and consumer cyclicals, which just so happen to be the best performing sectors year-to-date.
Interestingly, portfolio managers also shied away from buying the year-to-date losers, another indication of performance chase. The stocks in the S&P top 100 that are down on the year saw a relatively tepid bounce:
| AAPL | 0.63% |
| XOM | 1.03% |
| IBM | 1.90% |
| ORCL | 2.49% |
| CAT | 1.45% |
| EMC | 1.39% |
| SPG | 2.34% |
| LLY | 2.48% |
| SO | 0.73% |
| YUM | -0.81% |
| DE | 0.39% |
| BAX | 1.48% |
| AGN | 1.50% |
| Average move | 1.31% |
The average move of 1.31% was much below the 2.16% performance of the S&P 500 index.
In the coming days, I am keeping a close eye on the relative performance of the YTD leaders (like internet, biotech, and solar) vs. the YTD losers (like those 13 stocks shown above). Continued performance chase is likely indicative of future risk-on, while a reversal in fortune is likely indicative of future risk-off, as portfolio managers reduce risk into the end of the year.