The sequence of events here is giving me deja vu all over again. It is reminiscent of July 2008. The materials stocks peaked sharply and reversed, as the emerging markets turned down hard. Much of Asia had already turned months prior, while Brazil and Mexico topped dead last due to strength in commodities. However, the REITs and consumer stocks that I was short kept hanging on, as did many of the financials. They waited a couple of months before they got into serious trouble.
I guess the take-home lesson, if there is one, would be that the sector patterning right now could continue for a couple more months, with REITs and consumer stocks holding up surprisingly well while materials and emerging markets continue to get sold. Then, when that has weakened the props under the market sufficiently, the crap like CRE, finance, and retail might finally get beat up. Of course, the usual caveats apply - just because weakness in emerging markets and materials presaged a sound beating for the broader economy a couple months later doesn't mean it works that way this time. But it does appear that this selloff is the first of the past year to have the right ingredients for the "double dip."
I think the "herd" gets obsessed with the sharpest moves, and since things started in materials and the PIGS, they'll run from those for a while. They get preoccupied with that and ignore the financials, IYR, and consumer stuff, simply because they're focused elsewhere. Of course, the weakness in the former leads to weakness in the latter, but they're too busy selling steels and dumping dollar carry trades to worry themselves with the outcome two months from now.
`BC |
