Did Atlas Shrug?

What’s holding the market up?

Atlas in the Naples Archeological Museum. Source: Wikipedia

It’s not what it used to be. From 2012 to 2015, the market was led by Apple, Microsoft, Google, Wells Fargo, and Gilead. Those five mega-cap stocks accounted for over 10% of the market’s 58% move. But since July, things have changed. Microsoft and Google have continued to rise, while Apple, Wells, and Gilead have led stocks downward. Some of this is normal profit-taking. After all, trees don’t grow straight to heaven. It makes sense that people would lock in some of their gains. Apple was up 68%; Gilead was up over 200%. And there are fundamental concerns about how much more a giant company like Apple can grow when they already sell $230 billion in devices every year—more than the economies of half of the States in the US.

But part of what’s happening is a shift in leadership. The rally was dominated by tech stocks and banks, along with some big drug companies. Since that time, conservative companies like consumer staples, telecoms, and utilities have supported the market—firms like Wal-Mart, Verizon and Proctor & Gamble. If the economy is slowing, goes the thinking, then it’s best to invest in places where people will still spend no matter what happens.

Did you notice what’s missing from this discussion? Oil companies. They’ve been volatile lately, but not the market leaders everyone assumes. During the rally, giants like Exxon and Chevron didn’t move very much. While many describe the energy market of a couple years ago as an “oil-bubble,” these firms were consistently priced below the market’s valuation ratios.

S&P 500 weekly chart. Source: Bloomberg

This is helpful when you consider that what’s in the news isn’t necessarily what’s driving the market. We live in a dynamic, fluid economy where different factors dominate at different times, and what’s up one period could stall out, or could continue. The trend is your friend until it ends. Still, if market leadership is shifting to more conservative companies, this could indicate that it’s time to consolidate some of your gains.

Just don’t panic. Bob Dylan wrote that “the times, they are a’changin’.” But they don’t necessarily change that fast.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:08+00:00 February 18th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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