Indicator of the Week: The Bull Market's Two-Year Anniversary
By Rocky White, Senior Quantitative Analyst
Foreword: Wednesday of this upcoming week will mark exactly two years since the Dow bottomed in 2009. Since then, the Dow is up about 85%. This week, I'll look back at other such high-flying rallies over a two-year period. Also, I'll look at some specific sectors to see which groups have and have not participated in the rally.
Dow Rallies: An 85% rally over two years is quite rare for the Dow. The table below shows each time the Dow has accomplished this feat over a two-year period, going all the way back to 1900. This is only the ninth occurrence. The table also shows how the Dow fared over the next three months, six months, one year and two years after hitting this technical milestone. The returns are summarized in the second table below.
After hitting a two-year bull market anniversary, the Dow has tended to continue its rally during the next six months. However, the returns are bearish in the longer term. One year after this event, the Dow averages a loss of 2.7%. Two years later, the Dow was higher only 25% of the time averaging a significant 6.3% loss.
Sector Performance: I looked at some popular exchange-traded funds (ETFs) over the last few years to compare how individual sectors performing during the 2008 crash, and since the market bottom.
Below is a table showing the best ETF returns since the March 9, 2009 bottom. Precious metals are very popular right now, so it's not a huge surprise that SPDR S&P Metals and Mining ETF (XME) and iShares Silver Trust (SLV) are on this list. SLV has been especially impressive, as it has gained about 150% -- even including the 2008 market crash.
The financial and real estate sectors have really performed well, but remember: Those sectors got crushed during the crash. I think the appearance of the SPDR S&P Retail ETF (XRT) on this list will come as quite a surprise for many people. Even if you bought at the 2007 market top, this ETF has returned a respectable 22% over the last three years.
This next table shows the worst-performing sectors during the rally. Of the sector ETFs that I considered -- about 30 of them -- only PowerShares DB US Dollar Index Bullish Fund (UUP) and iShares Barclays 20+ Year Treasury Bond Fund (TLT) were down. Both of those assets were actually up during the crash. These are considered "safe havens," and money has started leaving these funds and flowing into riskier assets like stocks and commodities.
Thanks to overseas turmoil, the U.S. Oil Fund (USO) has been up over the last few weeks -- but over the last two years, the fund's returns are pretty modest compared to other assets. The Health Care Select Sector SPDR Fund (XLV) and the PowerShares DB Agriculture Fund (DBA) are also up modestly during the rally.
Below are some broader-based ETFs that I thought might be interesting to look at. Focusing on the major indexes, it's not a surprise that iShares Russell 2000 Index Fund (IWM) has performed the best during the rally -- small-cap names are typically more volatile than big-cap stocks. What's interesting, though, is that during the crash, the IWM's return was very similar to the returns of the larger-cap SPDR S&P 500 ETF (SPY) and SPDR Dow Jones Industrial Average ETF Trust (DIA) funds. The big caps, evidently, were not much of a "safe" play during the crash. The performance of iShares MSCI Emerging Markets Index Fund (EEM) is pretty similar to the U.S. index fund returns.
Last but not least, I've also included the returns of SPDR Gold Trust (GLD). Of all the ETFs I considered, GLD was the only one that showed positive returns during the 2008 crash and during the rally of the last two years.
This Week's Key Events: Fed Presidents Bookend a Light Week
Schaeffer's Editorial Staff
Here is a brief list of some of the key events this week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
The economic calendar kicks off Monday with updates on consumer credit and employment trends, as well as comments from Fed Presidents Dennis Lockhart and Richard Fisher. On the earnings front, Ciena (CIEN), Urban Outfitters (URBN), Perfect World (PWRD), and Casey's General Stores (CASY) will release their quarterly reports.
On Tuesday, we'll hear the latest report on chain-store sales from ICSC-Goldman Sachs. Notable earnings reports include Suntech Power (STP), Dick's Sporting Goods (DKS), AeroVironment (AVAV), and Korn/Ferry (KFY).
Wednesday brings us word on wholesale inventories for January, the latest MBA mortgage applications survey, and the regularly scheduled update on domestic petroleum supplies from the Energy Information Administration (EIA). Meanwhile, the day's earnings docket includes H&R Block (HRB), American Eagle Outfitters (AEO), Hercules Offshore (HERO), and Molycorp (MCP).
The weekly report on jobless claims hits the Street on Thursday, along with import/export data for January. Canadian Solar (CSIQ), National Semiconductor (NSM), Clean Energy Fuels (CLNE), and Smith & Wesson (SWHC) share the earnings stage.
We wrap up the week with the preliminary Thomson Reuters/University of Michigan consumer sentiment survey for March, along with comments from New York Fed President William Dudley. Retail issues AnnTaylor Stores (ANN) and Citi Trends (CTRN) round out the week's roster of earnings reports.
And now a few sectors of note...
Prepare for the investing week ahead. Every week, Bernie Schaeffer and his staff provide you with their insight about what has happened and, more importantly, what will happen in the market. We dig deep and show you what's happening behind the scenes, and tell you which indicators are predicting major market moves. If you enjoyed this week's edition of Monday Morning Outlook, sign up here for free weekly delivery straight to your inbox.
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