August markets: Beneath the summer doldrums, markets remain strong. I know — the narrow trading range, low volatility and light volume make it hard to concentrate.
August, traditionally one of the weakest months of the year, is up fractionally. Call it the election year effect, if you want.
I prefer to attribute it to healthy market rotation.
Just look at the new market leaders this quarter:
QTD sector winners
Tech: up 10 percent
Materials: up 5.5 percent
Industrials: up 4.7 percent
Banks, which started strong, have also started moving higher after a period of consolidation.
The losers are all the low-volatility sectors that had been popular in the earlier part of the year:
QTD sector losers
Telecom: down 5.4 percent
Utilities: down 4.7 percent
Consumer staples: down 0.6 percent
That low-volatility play has been a popular game for over a year, but it has not worked at all this quarter:
High Beta v. Low Volatility
(QTD)
High beta (SPHB): up 10.3 percent
Low Volatility (SPLV): down 1.2 percent
High-beta are small- and mid-cap oil names, some banks (usually regional), some tech. Low-volatility are mostly consumer names.
Another sign of market health is that the average stock is doing better than the market-cap weighted indices. The S&P 500, which is weighted by market capitalization (the biggest stocks like Apple, Amazon and ExxonMobil have a much greater weighting than smaller stocks) is up 0.4 percent this month, but the equal-weighted S&P 500 (RSP) is up more than twice that — up 0.9 percent.
This is true across many sectors: In Energy, in Technology, in Consumer Discretionary, and in Health Care, the average stock is outperforming the indices this month:
Energy
Equal-weight: up 6.2 percent
S&P Energy: up 4.5 percent
Technology
Equal-weight: up 1.9 percent
S&P Tech: up 1.2 percent
Consumer Discretionary
Equal-weight: up 0.8 percent
S&P Cons.Disc.: down 0.2 percent
Health Care
Equal-weighted: flat
S&P Health Care: down 1.1 percent
What's it all mean? It's just another way of showing that the rally has been broad-based.
Bottom line? Boring does not mean insignificant.