US stock indexes retreated this week, down -1% to -7% depending on the poison you picked. The most glaring divergence in the data is that small-cap domestic stocks (IWM or Grandpa Russell) are down 38% for the year while the Nasdaq 100 is down a mere 13.75%. It’s the worst first-quarter performance for stocks on record.
It is also worth mentioning that value stocks continue to lag (for the last 15 years) growth. High PE/Growth (price/earnings) stocks ultimately get hit the hardest during recessions and when Value stocks finally start to outperform the bottom is in or soon coming. Since Warren Buffet is sitting on $128 billion of cash, it will be interesting to see his next big move which could be an early sign that the selloff is close to over and lend a boost to value plays.
Stress in investment-grade corporate debt was alleviated by massive buying by the Federal Reserve, forcing shorts to cover. However, without that backstop, the markets would already be much, much lower. This leaves the issue of massive stock buybacks using cheap borrowed money to prop up stock prices and executive suite bonuses, leaving little reserves for unexpected downturns.
The devastating move lower in energy was reversed on news that Russia and Saudi Arabia (with some prodding by Trump) will try to limit production to stabilize prices as demand has plummeted along with worldwide GDP. As I am writing this, a squabble has broken out between Russia and Saudi Arabia so it remains to be seen if the rally this week can hold.
Last Weeks Highlights:
- Risk Gauges continue to show risk-off
- Value stocks continue to underperform
- Credit Markets continue to show high levels of distress (Investment Grade Debt getting a bailout)
- Market Internals and Market Sentiment relieved its short-term overbought readings and now are back to neutral
- Volatility (VXX) was down this week despite continued weakness in equities
- Biotech showed remarkable strength
- Gold firmed compared to equities, but it’s stuck in a wide trading range
Finally, all four major stock indexes closed under their 10-day moving averages, a clear red flag which means a test of the recent lows is next.