How To Look At A Day Like Today

What Happened

Stocks were up very sharply in the US and Europe today.    Reading the news commentaries tells us that this was about the banks.  Citigroup said it has been profitable in January and February, with revenue up maybe a third compared with performance during last year.  Rep. Barney Frank said the “uptick rule” might be reinstated.  And Fed Chairman Bernanke talked about how new financial services’ regulation might work.

I don’t think you can say anything definitive about a single day.  But if we look a little deeper than the news services, we may find some hints about the way the mind of the market is working.  We probably don’t want to do anything with information we develop, but we may find something worth watching further.

According to Google, the financials were up 9.54%.  (They weren’t the best-performing industry group, however. Conglomerates were, but that’s where GE (+19.7%) finds a home.)  Suppose financials make up 10% of the S&P.  If so, they would account for 95 basis points of the 6.37% index rise.  This implies the rest of the market was up about 6%. 

What were the outperforming industries, in the market ex-financials?  –technology and transport, two areas highly geared to the overall health of the world economy.  The laggards?  –consumer staples, healthcare, utilities, the most defensive groups, all around +2%.  The rest were clustered around 5.5%.  Not much to say, other than this is a broad vote in favor of the more aggressive, economically-sensitive groups.

Very mature companies like Intel, Microsoft or Cisco all outperformed Apple and kept pace with much “growthier” firms like Research in Motion.  In other words, buying wasn’t tilted toward individual firms’ growth prospects.

This wasn’t people trying to rush money back into the market by buying whatever they could find in bulk, either. Market cap didn’t seem to make a difference in performance, with small- and mid-cap stocks doing at least as well as their bigger counterparts.  Volume seems to have been higher than in the recent past, but not by much.

EMM, the i-share for the MCSI Emerging Markets Index, was up 8%+ today, and another .5% in after-market trading.  Again, a vote in favor of a more cyclically-oriented market.

The most interesting pattern I can find is that stocks with unusually good prospects under almost all likely economic conditions, that have outperformed significantly since 2009 began–stocks like IBM, Activision, Monsanto–have lagged today, both in regular trading and in the after-market.

What To Conclude

This may be splitting hairs, but if the cause of today’s rally is the belief that Citigroup’s slightly better health means the worst is over for the global economy (in other words, temporary insanity), then I’ll watch tomorrow but have no reason to think I should position myself more aggressively.  If, on the other hand, the Citi announcement is the trigger for a rally that traders should have waited until June for, then I still think I should do nothing, but I’m less concerned that a fizzled rally will bring us to new lows.

What will I be looking for?  a market that doesn’t yo-yo so much during the day, a flat close, more strength in cash-rich techs and some give-back in the more leveraged cyclicals.

PS.  I took a quick look at the Japanese market at the end of its first hour of trading.  A similar pattern to our market. Banks and exporters are up about 5%; firms with purely domestic Japan, like telecoms, are flat or down slightly.

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