Stocks have been under pressure during the past two weeks. Since September 9, the Dow Jones Industrial Average ($INDU) has given up approximately 260 points, or 2.5%. Not all sectors of the market have performed poorly during that time. Many of the energy-related stocks continue to show strength. At the same time, however, looking at the performance of the market’s weakest sectors reveals that stocks are falling due concerns about the economy.
Airline stocks have been the worst performers. The weakness in the sector is not surprising given that both Delta Airlines (DAL) and Northwest Airlines (NWAC) filed for bankruptcy protection one week ago. In addition, with concerns about rising jet fuel costs as well as ongoing strife with labor unions, the airline industry faces a number of headwinds moving forward. As a result, the AMEX Airline Index ($XAL), which is an average of ten airline stocks, is down 12.10% during the past two weeks. It is the market’s worst performer.
Airline stocks are not the only ones losing altitude, however. The table below shows the ten worst performing indexes since the market top on September 9. Retailers are struggling. The group took it on the chin late last week when a report on consumer confidence from the University of Michigan came in well below expectations. Shares have remained under pressure during the past few trading sessions on concern that the rising cost of gasoline and heating oil will hurt consumer spending from now until the holiday shopping season. The MS Retail Index ($MVR) is down 7.8% since September 9.
In fact, many of the sectors of the market that are considered sensitive to changes in the economy have been under pressure. The Homebuilders Index ($HGX) is down 6.1% since the recent market peak. The MS Cyclical Index ($CYC) is off 4.3%. Meanwhile, semiconductors are the worst performers within the technology sector. The PHLX Semiconductor Index ($SOX) is down 4.5%. The decline in the chip stocks is also noteworthy because the group is considered to be the most cyclical area within the tech sector. In sum, looking over the markets worst performers during the latest decline indicates that investors are selling those groups that are cyclical or very sensitive to changes in the economy. Concerns are mounting that these sectors will see the most significant deterioration in corporate profits.
Index Losers Symbol Loss Since Sept 9
AMEX Airline Index XAL -12.10%
MS Retail Index MVR -7.75%
Homebuilders Index HGX -6.12%
PHLX Semiconductor Index SOX -4.51%
MS Cyclical Index CYC -4.33%
AMEX Defense Index DFX -3.51%
Russell 2000 Small Cap Index RUT -3.41%
AMEX Consumer Product Index CMR -2.79%
AMEX Pharmaceutical Index DRG -2.68%
DJ Industrial Average DJX -2.43%
Index Gainers Symbol Gain Since Sept 9
AMEX Broker/Dealer Index XBD 0.42%
AMEX Oil Index XOI 0.62%
MS Oil Service Index MGO 1.02%
MS Commodity Related Index CRX 1.04%
Eurotop 100 Index EUR 1.11%
PHLX Oil Service Index OSX 1.30%
CBOE Ten-Year Rate Index TNX 1.48%
AMEX Natural Gas Index XNG 3.86%
AMEX Japan Index JPN 3.86%
PHLX Gold Mining Index XAU 7.86%
While worries about the economy have pushed many sectors of the market lower, others are holding up well. For example, many of the commodity-related stocks continue to show strength. The PHLX Gold and Silver Mining Index ($XAU) is the top performer. It is up nearly 8% during the past two weeks. The group has been following the price of gold higher. Gold has rallied from $435 per troy ounce to a 17-year high of $466 during the month of September. The precious metal has benefited from a combination of inflation hedging and also safe haven buying.
The bottom half of the table shows some of the market’s top ten performing indexes since the market top roughly two weeks ago. Overseas markets are doing well despite the weakness in the US market. The Euretop 100 Index ($EUR) is up 1.1% since September 9. The AMEX Japan Index ($JPN) has rained 3.9%. The AMEX Broker/Dealer Index ($XBD) is proving resilient following solid profit reports from Goldman Sachs (GS) and other brokerage firms.
Energy stocks continue to perform well amid rising crude oil, gasoline, natural gas, and heating oil prices. The AMEX Natural Gas Index ($XNG) is among the top performers after gaining nearly 4%. The AMEX Oil Index ($OSX) and the PHLX Oil Service Index ($OSX) are also doing well. The MS Commodity Index ($CRX), which is an index that holds stocks from a variety of different commodity-related industries, is up 1% during the past two weeks.
Overall, then, the weakness in cyclicals, retailers, and airline stocks indicates that the recent market decline is being fueled by concerns about the economy. However, commodity prices continue to rise and the trend is helping to boost shares of oil, natural gas, and gold mining stocks. Yet, the pattern is not likely to last because if the economy is slowing, commodity prices will eventually fall due to declining demand. In other words, it would be unusual to see commodity-related stocks rally during a period of economic weakness—unless, of course, the economy is entering into a period of stagflation.
Frederic Ruffy Senior Writer & Index Strategist Optionetics.com ~ Your Options Education Site Visit Fred Ruffy’s Forum
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