The market loves nothing more than to confound investors and traders. And, this past week was certainly confounding… but in a good way. As we discussed in the previous commentary, low-priced stocks tend to underperform the market on down days as liquidity tends to vanish first on the fringes of the market. So, it was surprising that our portfolio has been steadily gaining while the S&P 500 (SPY) has encountered significant selling this week. In this week’s commentary, I will discuss why this is happening and what it means. Read on below to find out more….Over the past week, the S&P 500 is down by 3.5%. What’s interesting is that the Russell 2000 is down by 2.3% and the microcaps index (IWM) is down even less – 1.6%. This state of affairs was reflected in our portfolio which was up 2.1% over the past week.
Why is this happening? My hunch is that we are seeing some selling pressure from the Fed signaling that a taper is imminent, either at this meeting or the next. This has been leading to strength in rates which is pressuring many growth and income stocks.
BUT, this weakness is offset by an improving economic situation especially as coronavirus case counts continue to tumble.