Where Is The Money Flowing?
Willie Sutton was once asked why do you rob banks, and his infamous reply was “because thats where the money is”. Well investors could take a cue from him, and put a real focus on the financials, since that is where market participants are deploying their capital. The group has been the second best major S&P sector performer (behind just real estate) over the last one month period. Is it a nascent start to better things to come, or will the longer term trend endure as the XLF is just the 8th best actor among all 11 on a YTD basis? Of course we have received many earning reports from some of the big banks with JPM and C higher by 3 and 1.4% on 10/15. BAC rose 1.5% on 10/16, but the largest component in the XLK, Berkshire Hathaway, looks like it is registering its fifth straight lower high dating back to last December.
Asset Manager Accumulation:
While it is no secret that the S&P 500 is enjoying a nice 2019, measured against some of the leading asset managers it pales in comparison. The chart below shows the disparity with BX APO and CG all outperforming in a powerful way. I could have put CNS in there as it has enjoyed back to back 7% plus weekly gains and has advanced another 1.8% this week so far. We are all about PRICE movement, but what could be behind the shift? It is possible that there is a transfer underway back into active management, from the passive state we have heard about incessantly? And who says you can not have your cake and eat it too. Overwhelmingly that is the case, but with the niche group one is getting BOTH capital appreciation and yield.
Not all boats/names have been affected positively by the rising financial tide. One has to look no further than former best of breed players MA and V which both have lost ground 4 of the last 6 weeks, and are following through lower in a strong way this week again. Below is another stock lagging, PYPL, and how it appeared in our 9/30 Financial Note. The stock now trades in bear market mode, 21% off most recent 52 week highs, and is lower 10 of the last 14 weeks. This week is off yet another 5% as it trades deeper below its 200 day SMA. The trend has certainly changed as it began 2019 with a 23 of 29 week winning streak. Perhaps a small consolation is it is acting better than SQ which is currently 30% off its own yearly peak. Tomorrow morning TWTR reports, and if that is a doozy expect the chatter that Jack can not run 2 companies simultaneously to heat up.