Market Recap - Follow the Money is a series of brief, information-rich posts that I will publish periodically but not on a fixed schedule. I rely on charts to do the heavy lifting and I keep my commentary to a minimum.
If you're like me, you prefer to visualize facts and figures rather than reading about them in a long article. That's why I use charts and tables instead of dull, tedious prose.
I also like to keep things as simple and on-point as possible. When I read an article that wanders off in several different directions before arriving at the ultimate payoff (assuming that there is one), I usually chalk it up to the author's need to meet a word-count quota. I will make these posts as long as they need to be, and no longer.
Chart 1. Major Markets
I divide the global equity market into three segments - U.S., Foreign Developed, and Emerging Markets. As with all the charts, I show the year-to-date return. You can follow the money as it moves among these three segments.
Non-U.S. markets are off to a good start after underperforming last year.
Chart 2. Market Sectors
Of the eleven market sectors, this chart shows the top three and bottom three performers. I do it this way to keep things simple. Money appears to be flowing out of tech, consumer discretionary, and REITs, and into energy and financials. This trend will probably continue as long as demand for oil & gas remains high and interest rates continue to rise.
Chart 3. Styles - Growth vs. Value
After slightly underperforming growth last year, value is off to a fast start. Whether this will continue is up for debate. Growth has been hit hard by the slide in tech stocks this year.
Chart 4. Size
Small caps are still lagging. After underperforming last year, they are struggling to keep up this year. Mid caps were almost tied with large caps last year, and the are in a dead heat this year.
Chart 5. Factors
There are more than 100 factors to choose from, so I had to cut the list to just five, in order to keep this chart reasonably easy to digest. Quality is getting pummeled this year after a stellar 2021. Mean reversion at work.
The surprise, at least to me, is the performance of high beta stocks. My takeaway from this chart is that high beta does not necessarily go hand-in-hand with price momentum.
Chart 6. Sensitivity to the business cycle
In this chart I divided the market sectors into two groups - those that respond more vigorously to the changing phases of the business cycle (economically sensitive), and those that respond less vigorously.
With the economy firmly in growth mode, cyclical stocks should do better than defensive stocks. That hasn't happened yet this year, and maybe the market is sending a signal that the economy isn't as strong as many would like to believe.
Chart 7. Bonds
I threw bonds into the mix because I have the data, and I think it might be interesting to watch how the various flavors of bonds react to Quantitative Tightening. So far it looks like the 10yr Treasury bond is seeing the most outflows.
Keep an eye on junk bonds, because they are especially vulnerable to an economic slowdown.
Chart 8. Countries
There are 50 countries that are represented by ETFs. Here are the top and bottom 3 performers YTD. Looks like South America is having a resurgence this year, while Russia is struggling with geopolitical issues and heavy sanctions - both imposed and threatened.
Final thoughts
2022 is only 12 trading days old, so these numbers will undoubtedly shift as the year progresses. By keeping an eye on money flows among these categories, you can gain some insight into what could become a durable trend, and what's just noise.