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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Volatile Market Might be Pounding Out a Bottom
Editor’s Note: David Brown is on vacation. Scott Martindale, Sabrient’s senior managing director, is this week’s guest editor. Scott handles institutional sales & marketing for Sabrient. He also writes the weekly Sector Detector and manages the virtual Select Opportunity Portfolio.
Yet another volatile week is behind us. The elevated volume of the prior week gave way to more modest volume early last week, but market weakness on Thursday and Friday brought back the heavier volume. The perma-bears and fear-mongers have been coming out of the shadows in greater numbers like zombies in a horror movie. This must mean that stocks are getting close to a bottom.
The VIX (CBOE Market Volatility Index – a.k.a. “fear index”) closed today (Monday) at 42.44, which is high, and the TED spread (indicator of credit risk in the general economy) has been going straight up since its V-bottom on July 29, closing today at 31.35 – its highest level in over a year. This indicates a rising worry about bank liquidity and a preference for the safety of Treasuries over corporates.
Our Federal government is as dysfunctional and confrontational as it has ever been, and the start of the election cycle may only make things worse. Dollars have been fleeing equities in favor of Treasuries and gold. Even cash doesn’t seem safe, so gold has been on a tear as a traditional safe haven on fears of global financial distress, illiquidity, and stagflation. The underlying problem seems to be public mistrust of governments and financial institutions.
The Financial sector has been at the forefront of the volatility, showing up as either the best or worst performing sector almost every day (and they were the weakest sector again today). Although Sabrient’s SectorCast model indicates that Financial ranks among the highest on a forward-looking basis, many of the large bank stocks are rated “very aggressive” in their accounting and governance practices, which makes them relatively risky as individual investments. Few carry Buy ratings in the Sabrient Ratings Algorithm.
Despite the threat of renewed recession, we are in an environment in which the multinational corporations (including banks) are making record profits and sitting on record amounts of…
