2008 YTD Market Wrap Up - Glad It's Over

It certainly wasn't the worst-ever first half of the year for stocks, but it wasn't the best either...by far. For the Dow Jones Industrial Average, it was the tenth worst first-six-months of any year, going back to 1900. The most recent time we watched the Dow lose more than the 14.4% it sank this year was in 1970, when it fell 14.6% by the end of June. The only other modern era occurrence of a loss that big during the first six months of the year was in 1962. The Dow Jones Industrial Average fell 23.23% that year. 

From a sheer momentum perspective those results could be daunting. However, there may be a reason for at least a small celebration. In 1970, the Dow gained 22.8% in the last half of the year, and in 1962 the blue chip index rallied 16.2% between July and December. 

Yes, that was then and this is now, but that hasn't stopped the media from adamantly telling the bearish story. If they're going to compare now to then though, they should also give you the rest of the story. Since they won't, we will. 

That's not to say any of us should dive into stocks blindfolded. Given the odds though - and the fact that most investors are getting nervous - there may be a lot of undervalued stocks to scoop up at great prices right now. The market has a way of turning around at a time when investors expect it the least. 

Bear in mind it took us six months to get into this dismal shape, so don't expect everything to be OK in just six days... think longer term. 

On that note, let's also take a closer look at the best and worst sector performances for the first half of the year. We'll throw in market cap and style performances as well. The laggards may well become leaders, and vice versa.
 

The Market's Best And Worst

Sectors 

No surprises here ...transportation stocks are ahead of the pack, up 15.0% year-to-date. Financial stocks are dragging the bottom with their -23.1% slide. It's worth noting telecom stocks are a close next-to-last, with a YTD loss of -17.2%. 

Everything else is lost in the middle, sandwiched somewhere between a 6.1% gain and a -9.9% loss. 

The other two sectors with positive returns year to date are - in order - energy and basic materials, which again is no surprise. The remaining sectors are in the red. Again from best (as in 'least weak') to worst you have utilities, down by -2.0%, followed by staples, consumer discretionary, information technology, and then industrials. Telecom falls below industrials. 

Though technically in the top spot, clearly transportation stocks have taken on a different tone over the last month. Even energy and basic materials stocks haven't been stellar. 

As for a forecast, we're expecting rotation out of some arenas and into others. 

Financial stocks have been treated as if they're radioactive. Not that they're fault-free, but the dumping of them en masse may have been overdone - you might want to look for values there first. Though telecom is also well into the red for the year, some of these stocks have also perked up ...somewhat. Utilities and consumer staples, of all sectors, actually have the most near-term relative strength. 

Energy and basic materials doled out tons of rewards last year, but we're not looking for those massive gains again. 

Styles 

Technically, mid cap value was the winning group for the first half of the year, but only by the virtue of losing the least. The stocks closed down -5.2% year-to-date yesterday. The biggest loser was large cap value; it's in the hole by -25.9% for the year so far. In both cases, we've seen these relative positions for months. 

The other key groups are in a tighter race for second, or next to last (depending on your perspective). 

Year to date, large cap growth is lower by -9.9%, small cap growth is off by -12.9%, mid cap value is down -17.4%, and small cap value is down by-18.6%. 

Our style expectation is the same as with our sector outlook - rotation is likely to be in store. Value has gotten hammered, but is positioned to outgain growth when-and-if things turn around. Mid cap growth has the most to give up, and likely will. Large cap value has the most to regain, and is apt to do just that. 

As for the rest of the style box, it's too close to call at this point.
 

Early Closing Today

We hope you have a happy and safe Independence Day. Markets are closed on Friday, of course. However, you may also want to note that exchanges are closing early today as well, to give everyone an early start on the long weekend. Trading will stop at 1:00 pm EST.

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