Gavekal Capital: Stock Indices Made New Highs Yesterday but the Average Stock is 10% From Its High

Thursday, April 3, 2014

Stock Indices Made New Highs Yesterday but the Average Stock is 10% From Its High

Yesterday we highlighted here the fact that stock indices are making new highs, but individual stock participation in the rally has waned. We showed that the percent of stocks making new 100 day highs has narrowed even though the major regional MSCI indices keep advancing. Today we'll focus on another way to look at broad stock participation which is to measure how far away stocks are on average from their one year high. This idea is that if on average individual stocks are within close proximity to their one year high then participation in the rally is broad, and vice verse. What we find when looking at the data is that the average stock is trading at 90% of it's one year high - which is to say that the average stock is 10% lower than its on year high. This may seem peculiar given that yesterday the MSCI North America, MSCI Europe, and MSCI World Index all closed at or near a new cycle high.

In the first table below we show the sector breakdown and in the second we take a more granular look and show the industry group breakdown. What is clear to us from reading the data is that more defensive and/or later cycle groups seem to be closer to their one year highs than more cyclical/early cycle groups. This fits with the rotation out of Consumer Discretionary and Biotech and into more defensive and/or cheaper names we've seen recently. In any case we'll be keeping an eye on the waning individual stock participation as the indices continue to make all-time highs.