Holding Steady

Market Commentary: Volume is starting to pick up again now that the Fed has come to the rescue. August is typically one of the lowest volume months of the year. August 2007 was an exception, an extreme exception. Monthly volume for the NYSE and Nasdaq both hit new lifetime highs. Unfortunately, the vast majority of that volume came on the downside, leaving those huge volume spikes painted red on computer terminals across the country. During the last half of August, the seasonal reduction in volume did return. Volume typically picks up within a week after Labor Day, but that was not the case this time. It wasn’t until the FOMC meeting last week that volume started to return to the market. The markets haven’t staged a significant follow-through since the Fed-inspired action of last week. However, it is encouraging that the markets haven’t really given back anything either.

The Fed action has steepened the yield curve through changes at both ends of the maturity spectrum. Short-term rates and 2-year yields have dropped, five-year rates are essentially the same as they were before the meeting, but 10-year and 30-year yields have increased. If the Fed action was meant to help consumers, the opposite has happened. If it was meant to help banks that borrow short and lend long, then they should indeed reap some benefits.

Sectors: On a relative basis, very little has changed for sectors over the past few months. The strongest in late June are still the strongest today. The weakest in June are still the weakest today. On an absolute basis, all the sectors went through significant changes. All were strong in late June, most were weak in mid-August, and most have regained their strength here in late September.

Styles: There has been some minor jockeying for position in our style rankings, but the overall theme remains the same. The market is currently favoring Growth and Large Cap while shunning Value and Small Cap.

International: The performance of the Chinese market is putting the rest of the globe to shame. However, with an intermediate-term momentum reading of 138, China is certainly extended, and perhaps frothy.