Peaking Behind the Stock Market Indexes

Most investors talk about “the market,” referring to the stock indexes. But you have to  look behind the headlines or the index totals. There are many different stocks and sectors within an index. Your performance can be far higher or lower than the index depending on what you own. Looking into the details also can reveal something about what’s happening in the economy, or at least what investors are expecting from the economy.

Here’s a review of what’s been happening behind the headlines recently. The defensive sectors of the stock market have been doing well, while the cyclical sectors have lagged and are around even for the calendar year. The first chart in the piece is an interesting picture of what’s happened over the last few years. Defensive stocks lagged for some time, surged to even with cyclicals, and then surged ahead as cyclicals faltered. It shows investors generally expect slow, steady growth for a while.

Not surprisingly these ratios roughly mirror growth expectations for various countries relative to recent growth (not relative to each other). What’s striking here is the dispersion. The markets seem to accept that Abenomics-based stimulus in Japan will pull the nation out of the deflationary spiral and generate growth, albeit a temporary one. Japan’s construction companies for example will clearly benefit in the short term from all the extra cash. China however is on the other side of the spectrum (see post), pulling down the overall global growth expectations.