World Markets Weekend Update: The Nikkei Pops, All Others Drop

Includes: DIA, QQQ, SPY
by: Doug Short

Japan's Nikkei 225 was the only market on my world watchlist with a gain for the week, and a handsome one at that, up 4.28%. Of course, that comes after four weeks of savage losses. The SENSEX and S&P 500 finished in a near dead heat for second place, down a bit over two percent. The other five indexes ranged from -3.05% to -4.15%. The biggest declines for the seven losers began Wednesday afternoon, when the U.S. Federal Reserve put a potential time-frame and conditions for the end of QE. What we saw was the beginning of what could be a significant price discovery process as world markets gauge the impact on liquidity of an exit strategy for the U.S. central bank's purchases.

The Shanghai remains the only index on the watch list in bear territory -- the traditional designation for a 20% decline from an interim high. See the table inset (lower right) in the chart below. The index is down a whopping 40.28% from its interim high of August 2009. The S&P 500 remains closest to its interim high (which is its all-time high) with a gap of 4.60%. The DAXK is a distant second at 9.03% off its interim high.

Here is a closer look at the YTD performance, which, more than anything, illustrates the power of Abenomics to levitate the Land of the Rising Sun to its interim high on May 22, followed by a sudden and dramatic selloff and partial recovery last week. But we can also see the coordinated slide of late in the other seven indexes.

Here is a table highlighting the 2013 year-to-date gains, sorted in that order, along with the 2013 interim highs for the eight indexes. The strong performance of the Japan's Nikkei over the past few months, despite its big correction, puts it solidly in the top spot with a 27.27% YTD gain, but way off its 2013 peak gain of 50.33%. The DAXK has slipped into negative territory to give us an even 4-to-4 split for YTD winners and losers.

A Closer Look at the Last Four Weeks

The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. I've also included the average for each week, so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.

The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.

(click to enlarge)

A Longer Look Back

Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai SENSEX, Hang Seng) is readily apparent, especially the SENSEX, but the trend over the past two years has not been their friend (make that three years for the Shanghai).

(click to enlarge)

Note: I track Germany's DAXK a price-only index, instead of the more familiar DAX index (which includes dividends), for constency with the other indexes, which do not include dividends.