Stocks recovered big losses today to finish roughly unchanged, with one big exception–small caps, which had their best day since mid-August.
Getty Images The S&P 500 finished up 0.01 point at 1946.17 after being down as much as 1% earlier today. The Dow Jones Industrial Average, meanwhile, fell 3.66 points, or 0.02%, to 16,801.05 after dropping as much as 0.9%, and the Nasdaq Composite gained 0.2% to 4,430.19 after falling as much as 1.2%. The small-company Russell 2000 gained 1% to 1,096.38, a sign that investors might possibly be looking for bargains in the beaten-down group.
With the stock market so weak this morning, one would have thought that today’s jobless-claims data must have been horrific. One would have thought wrong. Marketfield’s Michael Shaoul explains:
This week’s data underlined this point with Initial Claims dropping back to 287K, below the 297K expected while last week’s report was nudged 2K higher to 297K. This allowed the trailing 13 week ma to fall below the key 300K level, underlining that this has not been a short term data-blip but instead a reliable decline in the level of Claims…
The weekly Initial and Continuing Claims reports continue to provide the strongest employment data across the broad spectrum of available metrics and at the very least it can be assumed that corporations are reluctant to lay off workers (or simply see no reason to do so) and that the pool of short term unemployed is much closer to boom conditions than a recession. Of course this is not the whole story for a labor market that still shows obvious scars from the collapse of 2008/9, but the fact that Claims data has a very good track record as a cyclical indicator means that the clear message of improvement should not simply be dismissed. It may be unclear how “good” or “bad” the labor market remains at the current time but the fact that it has improved markedly in recent months is much less open to doubt.
The fact that small-caps led the market today fits with other data showing that the selling in recent weeks has been driven by the market’s most popular stocks. The folks at Bespoke Investment Group explain:
The "analyst ratings" category is notable because it's not the most highly rated stocks that have outperformed. In fact, the three deciles of Russell 1,000 stocks with the most positive analyst ratings have underperformed. The two deciles of stocks with the most negative analyst ratings have outperformed. Stocks with high institutional ownership have also gotten hit hard and are underperforming. The stocks with the least amount of institutional ownership have mostly outperformed.
The last decile in the matrix looks at year-to-date stock performance leading up to the start of September. Decile one contains the 100 best performing stocks in the Russell 1,000 year-to-date through the end of August, while decile ten contains the 100 worst performing stocks year-to-date through the end of August. At shown, the three deciles of stocks that had done the best in 2014 through August have all underperformed since then, meaning investors have sold their winners. Interestingly, though, the decile of the worst performing stocks in 2014 through August has underperformed since then as well, so investors have continued to sell the biggest losers as well.
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Despite the turmoil, might the market simply be going through one of its periodic rotations, painful sure but ultimately providing a reset that preps the market for the next leg higher?
Stay tuned.
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