As a blogger and investment adviser, I spend a fair amount of time on social media sharing my ideas with others and absorbing new concepts. I find that the community of the well-respected traders and investment guru’s that I follow has opened my eyes to unseen opportunities as well as potential pitfalls. All told, the sum of this engagement has been a productive use of my resources in vetting the path for the portfolios I manage.
One prescient tweet from @NorthmanTrader on Twitter today spoke of the nature of the markets at this juncture.
There’s a reason most funds are lagging big time. It’s not because these managers are idiots, it’s because everything is disjointed.
— Northy (@NorthmanTrader) December 9, 2014
I think that is a fair assessment of the seemingly endless divergences we have seen in 2014. Portfolio managers have been confounded by the continued strength in broad-based equity indices such as the SPDR S&P 500 ETF (SPY) and PowerShares QQQ (QQQ), while many individual stocks and traditional high beta small caps have failed to make any headway.
If you’re a stock picker, the difference between the 45% rise in Apple Inc (AAPL) and the 4% decline in Google Inc (GOOGL) this year probably has you scratching your head. Aren’t stocks in a similar segment like technology supposed to move in a similar fashion? The 50% relative performance divergence between these two mega-cap companies can make or break your year depending on your asset allocation.
Another matchup of endless speculation is the strength in bonds with equities sitting near all-time highs. Bonds are generally regarded as a flight to quality mechanism that only trade with such strength during periods of duress in the stock market. Yet here we sit with the iShares 20+ Year Treasury Bond ETF (TLT) having hit a new 2014 closing high with gains of more than 24% this year.
Stock bulls have bemoaned how that can keep happening when the economy appears to be on sound footing and the Fed is contemplating its first rate hike in half a decade. They relish the opportunity for interest rates to rise and capital to come spilling back into cash, stocks or other areas of the market.
