This week the market, as measured by the S&P 500 had a positive 2.03% return, trading at an annualized 23.7% volatility. The S&P 500 ETF SPY, had a positive return of 1.98%.
The weekly sector performance was:
Excess Return over SPY
From June 22, 2012 to June 29, 2012
You would think what a nice week we are having, if the market could deliver 2% per week on a consistent basis that would be a an incredible feat. Of course the reality is not nearly as rosy.
The four day return for the week from Monday to Thursday was actually negative 0.45% for the S&P 500 and negative 0.50 for the S&P 500 ETF SPY. We got all those gains in one day on Friday with quite impressive showing of one day gains of positive 2.49% for the S&P 500 and positive 2.50% for the S&P 500 ETF SPY.
Excess Return over SPY
From June 28, 2012 to June 29, 2012
Unlike last week, this week's top performers were all the sectors that represent a booming economy, the top three performers were Energy (4.62%), Materials (3.19) and Industrials (2.65%) sectors. One would think we are in a middle of a bull market. I really don't think so.
In fact the weekly volatility increased, the VIX was hovering around 20 for most of the week, except Friday. Friday's rally was a sigh of relief, after many days of holding our breath to see what will happen with the eurozone, when we saw that the Europeans are "potentially" doing something about saving the eurozone.
The two big surprises for us were the Financial and Healthcare sectors. We expected big swings for both, depending on the results of the European meeting and depending on the Supreme Court decision. With some movement in Europe to save the eurozone our expectation was that the Financial sector would move upward, which it did not, the Financial sector stayed flat relative to the S&P 500. With the Supreme Court upholding the Patient Protection and Affordable Care Act legislation, we expected the Healthcare sector have a swing to the downside, but surprising the sector stayed flat relative to the S&P 500 Index.
The Energy sector had an impressive performance as well, it was the top performing sector for the week. The Energy sector was up 4.62%, beating SPY by 2.64%. In contrast to what we wrote last week about how poorly performing the energy sector has been for the last year, this week the Energy sector rebounded well. We still hold the view that the gains will not last as the demand in the U.S. and worldwide is not growing and that the majority of OPEC countries do not want to raise prices to make the current poor state of world economies even worse.
The fundamental and macro pictures have changed very little this week, the U.S. economy is showing signs of recovery, but at a snail's pace and troubles in Europe are far from over. In addition to that, in Europe, even Germany, which is the strongest economy on the continent, has shown a slowdown, which does not bode well for further European rescue plans that Germany is willing to pay for.
Expect continued increase in volatility and markets trading based more on global news than on fundamental value.
Disclosure: I am short SPY. At the time of writing, Rockledge had long and short positions in SPY, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY