Wednesday’s trading action following earnings reports is showing something rarely seen in this age of exchange-traded funds, closet indexing and computer trading: stocks are moving on their own merits. The best companies in each sector are revealing themselves and other stocks in that industry are not moving in lockstep with them and either is the overall benchmark. Stock picking is back Wednesday for a time.
Morgan Stanley is surging more than 10 percent while the rest of the financials stagnate after Morgan’s report revealed an increase in trading revenue that had eluded its peers like Goldman Sachs and JPMorgan Chase . Coca-Cola jumping while the rest of consumer staples are little changed as the world’s biggest beverage seller showed a profit increase fueled by sales surrounding World Cup promotions.
Other examples today include Freeport-McMoRan outperforming the rest of the materials sector, Abbott Labs topping the drug sector and, of course, Apple leading technology.
“The best in breed companies are really proving themselves to be best in breed,” said Pete Najarian, co-founder of OptionsMonster.com and TradeMonster.com. “I’m really impressed by Morgan Stanley.”
The Standard & Poor's 500 Index traded for most of the day with little change, despite blowout results from these companies. Typically investors will extrapolate these results to other companies and bid up the sector, often buying the industry ETFs instead. That did not happen Wednesday, even though 80 percent of the S&P 500 has yet to report. The busiest day of the earnings season is Thursday.
Wednesday’s so-called stock picker’s market is in sharp contrast to the trend over the last 10 years. Birinyi Associates took the daily change of the 500 members of the S&P 500 and compared them to the daily change in the index itself over a rolling 200-day period. Ten years ago, stocks moved more independently, at a 0.3 correlation. Wednesday, the correlation is approaching the 0.7 mark, which basically means that 70 percent of the time, an individual stock’s move will match the change in the overall index each day.
What a refreshing change… for a morning.
With reporting by Juan Aruego.
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