Market Correction and Summer Doldrums.

Both Dr. Ed Yardeni and Bespoke Investment Group do a better job at illustrating two points we've recently made.  We've discussed last Thursday the great consolidation going on with the market.  Doctor Ed talks about this in the context of this chart which shows historic corrections since 2008.  

And notes in this excerpt how this correction so far has been different:

"This year’s correction is unique so far. The S&P 500 is down just 0.5% from its record high on May 13. However, lots of stocks are down 10%-20% since March. They tend to be SmallCaps, as evidenced by the 8.7% decline in the Russell 2000, and the 12.2% drop in its Growth component. The Nasdaq is down 5.2% from its recent high. However, some LargeCap stocks have also taken big hits. In the S&P 500, Biotechnology, Internet Software & Services, and Consumer Discretionary Retail are down 13.5%, 12.0%, and 9.4% from their recent peaks.

I have characterized the recent selloff as an “internal correction.” Scrambling to avoid giving back the fabulous gains from last year’s melt-up rally, institutional investors have been rebalancing their portfolios away from high-P/E to low-P/E stocks. They’ve moved some of their portfolios out of Growth into Value stocks. Stocks with predictable earnings are outperforming the more cyclical ones."

We've talked many times about market seasonality, most recently in our spring letter to clients.   Bespoke talks about the summer doldrums arriving early in 2014:

"Although volatility still reigns supreme in small caps and the group formerly known as the highfliers, the broader market couldn’t be more relaxed as the proverbial summer doldrums have set in early.  Over the last three months the spread between the S&P 500’s intraday high and low has been less than 5% (chart below).  To find a three month range where the S&P 500 traded in a narrower range over a three month period, you have to go eight years back all the way to October 2006.

For the S&P 500 to trade in such a narrow range over a three month period is certainly not a common occurrence.  First of all, going back to 1984, there have only been six other periods where the S&P 500 traded in a narrower range after not having done so for at least six months.  Additionally, the average spread between the S&P 500’s intraday high and intraday low over a three month period is 13.2%, or more than 2.5 times the current three month high-low spread."

*Long ETFs related to the S&P 500 and Nasdaq in client and personal accounts.  We are long various components of the other indices mentioned in these articles in certain client and personal accounts.  Note however that positions can change at any time.

Links:

Yardeni:  "Anatomy of an Internal Correction"

Bespoke:  "Summer Doldrums Arrive Early"

I have something that's come over the transom today so I don't know if I'll be posting tomorrow.  For sure I will be back Thursday!