We kickoff the 4th quarter, 2012 Monday morning, with the S&P 500 up about 15% year-to-date, much higher than a lot thought possible this year, given the “macro” environment.
Per one source, even for an election year, the S&P 500 is still about 5% of that typical election year historical return profile.
Here is the 3rd quarter and year-to-date returns for the SPDR’s sector ETF’s (source Bespoke):
Cons disc: +6.88% and 19.91% (Housing bull market, anyone ? Pulte Home one of the top stocks in S&P 500 this year.)
Cons stpl: +3.03% and +10.26% (defensive stocks underperforming)
Energy: +10.64% and +6.23% (Energy feels the China slowdown)
Financials: +6.53% and +19.92% (pleasant surprise this year – revival in financials ?)
Hlth Care: +5.57% and 16.65% ( large-cap pharma exits a bear market, biotech too)
Industrials: +2.41% and and +8.24% (Industrial underperformance has created good values)
Materials: +4.28% and +9.85% (Energy and Materials bounce in q3 ’12, estimates still falling)
Technology: +7.31% and +21.12% (Apple a day, keeps the underperformance away)
Telecom: +13.62% and +21.57% (Verizon and AT&T having another good year)
Utilities: -1.62% and +1.14%
SPY: +5.78% and +14.72%
* Gundlach vs. Bill Gross: very few have noted the dueling bond titans. Bill Gross thinks the “death of equities” and forever higher bond prices is the foreseeable future. Gundlach thinks that Treasury prices have already peaked. Interesting that Gundlach also thinks that the next 12 years equity returns will be greater than the last 12. Gundlach is dissing Bill Gross right and left. Maybe there is a new bond titan in town ?
* Payden & Rygel has a fascinating line in their frequently-played commercial on CNBC: 10% of all goods and services produced in human history, have been produced in the last 10 years. Fascinating statistic. No one has challenged yet that I am aware of…
* Industrials offer good value here, names like FedEx (FDX) at 6(x) cash-flow, Boeing (BA) and GE. The sector has underperformed badly this year, looking at the above returns, with Industrials about 8% to 10% behind the S&P 500. It looks like we need to await the return of global growth for the sector to catch a tail-wind.
* High yield was up in the quarter, returning between 1% and 2% for HYG and JNK, not including the interest. The asset class has pulled back of late with the stock market.
* Could the homebuilder stocks be finally pulling back ? Lennar and Toll, our only two holdings, are being valued on 2015 estimates. Sector looks very stretched technically, so we would love to see a 20% – 30% pullback in the names.
We are long all of the above-mentioned stocks, except Pulte. Our three biggest sector overweights are technology, industrials and financials. Tech has been strong all year, Financials are starting to perk up, and Industrials remain comatose.
Selling our Verizon at $38 in March still looks pretty stupid.
Regarding the headline to tonight’s blog, I actually wish that were true. Apple has helped our portfolio returns as has IBM this year, but we still struggle to keep up with the S&P 500.
Thanks for stopping by. Check our earnings previews over on Seeking Alpha (www.seekingalpha.com.) Last week we previewed Nike, Walgreens, and Lennar. (Long all three stocks.)
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager