Sunday, December 7, 2014

YTD Strength and Weakness

At any point in the year it's important to understand where money has rotated and which sectors are most responsible for the direction of the broader market.  The month of December brings about additional factors that may influence money rotation and the behavior of the year's leaders and laggards.

As it stands, the S&P 500 is up north of 12% in 2014.  Sectors most responsible for the index's rise include Health Care (XLV up 27% ytd), Utilities (XLU up 22%) and Technology (XLK up 18%).  Consumer Staples, Financials and Industrials have stayed relatively in line with the index while Homebuilders (XHB down .5%), Energy (XLE down 8%) and Metals/Mining (XME down 23%) have been extreme laggards.

Looking globally, Indian stocks have dramatically outperformed most investable markets this year (INDY up 35%).  Other notable markets include China (FXI up 8%), EWH (up 3%), Japan (EWJ down 3%), Germany (EWG down 10%) and Brazil (EWZ down 12%).

What we typically see over the last month of the year, particularly in an advancing market, is that leaders stay strong while losers will continue to slide into year end.  A primary reason the weak sectors and individual stocks continue their downtrend is tax-loss harvesting. Investors look to sell losing positions in an effort to offset any gains they've realized over the course of the year.

If you're looking to put cash to work or re-allocate your portfolio going into year-end, you'll want to know where the dollars are flowing and what areas of the market are showing signs of weakness.

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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