It's been another decent day for the markets, but even as major indices approach historic highs, the field is littered with the corpses of those on the wrong end of the global growth slowdown.
The good news is there's a bit of a global boomlet in stocks in the last week or so, and it's easy to see why. With Greece moving toward some short-term resolution, and China stabilizing, global markets have rallied in the past 6 or 7 trading sessions:
Global rally (since July 8)
Germany up 9.3%
Shanghai up 9.0%
Australia up 3.5%
S&P 500 up 3.6%
Not bad for a few day's work. On this, volatility has collapsed, with the CBOE Volatility Index (VIX) poised to close at a new low for the year.
But even a cursory look at the markets will reveal that there is some very big divergences going on.
Specifically: the rally is mostly in defensive names. Consumer Staples. Utilities. Telecom. Healthcare.
OK, there's also a few Technology stocks doing well, like Google.
But the sectors most exposed to the global economy—energy, materials, and industrials—are having a really rough time:
Sector laggards (one month)
Energy down 4.5%
Materials down 4.1%
Industrials down 0.7%
These are the companies exposed to China and the slowing growth story. And it is NOT a pretty picture.
Just look at what four companies have said in the past 24 hours or so:
1) Alpha Natural Resources, a coal company, is in talks for bankruptcy financing and has just been de-listed from the NYSE;
2) Anglo American, a global mining company, is writing down $3-$4 billion in iron ore and coal assets;
3) Allegheny Tech, a steel company, has issued a profit warning, noting the world is awash in Chinese steel exports;
4) Car maker Audi said it may abandon its China car sales target due to slowing growth.
The stock market, of course, has not been waiting for these companies to issue a press release. The weakness is well known, and investors have been aggressively shedding global industrials.
These are the companies that operate in dozens of different countries and sell a wide variety of products, from flow control valves, power components, pumps, heating & air conditioning, all the stuff that goes into modern buildings and vehicles, the stuff that is behind the walls.
Look what's happened to some of these companies in the last few weeks:
Global Industrials (one month)
Emerson down 8.9%
Dover down 7.7%
Fluor down 7.8%
Eaton down 6.3%
Textron down 4.2%
And remember...the overall major indices have been in an uptrend! We need growth, and it's not materializing!