Companies and Stocks are Not The Same Thing

Companies and Stocks are Not The Same Thing

Posted on August 28, 2017
Market State 2: Bullish/Rational (12 trading days): The S&P 500 was up 0.7% last week and is up +9.1% year to date. Growth stocks have been much stronger than Value.

US Large-Cap Value   +3.67%
US Mid-Cap Value     +2.16%
US Small-Cap Value   -2.85%
(Source iShares Morningstar ETFs YTD through 8/25/17)
Best S&P 500 Sectors
Technology   19.31%
Health Care   14.52%
Worst S&P 500 Sectors
Energy           -16.36%
Real Estate     6.67%
(Source SPDR Select Sector Funds YTD through 8/25/17)

Canterbury Volatility Index (CVI 41):  The CVI volatility remained unchanged for the week. As discussed, in the previous two weekly updates, the market’s volatility had squeezed down to such a low point that it was likely to experience a couple one day outliers (+/-1.5%). The two -1.5% one day declines on 8/10 and 8/17 were enough to help remove the pressure.
Volatility, as measured by the CVI, remains lower than normal. The market is now in an environment where outliers could occur but are much less likely than before.

International stocks and bonds continue to be strong. The S&P 500 companies have benefited from increased international sales resulting from a weak dollar. That said, U.S. Stocks have been under-performing their international counterparts.  The following Chart shows the decline in the dollar verses a basket of foreign currencies.
 Chart of U.S. Dollar

Source: AIQ
The chart below shows the stark contrast between the U.S. and International stock markets.

Source: AIQ

Every traded market or security will have volatile/bearish characteristics at some point in time. This is true even if the underlying company has been profitable. For example, one of Warren Buffett’s largest holdings (IBM) continues to be a great company. The “company” has been profitable since the time he purchased his first shares in 2011 and continued to buy through 2013. The peak in IBM’s price was $215 per share. As of Friday, IBM was at $143.74 per share. According to the Canterbury Volatility-Weighted Relative Strength Ranking System IBM ranks at the bottom of all S&P 500 stocks.

Bottom Line:
A buy and hold strategy has no answers for bearish market environments. On the other hand, a rules-based, adaptive portfolio management operating system may adjust to handle all market environments.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin
As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.