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The first five months of the year were a maelstrom of activity, with considerable volatility in sectors , individual stocks and the market as a whole. By comparison, June has been benign, even boring. Blue-chips have traded in a range and the spread of sector returns has narrowed significantly.
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That said, the the month has not been without marked ups and downs in the main indices; the FTSE350's 3.8 per cent decline during June to date is actually bigger than the movements seen in both May (3.7 per cent) and March (2.8 per cent). All the same, the range of sector performances in June has been a lot more muted than other calendar months of 2009.
In fact, the difference between returns from the best- and worst-performing FTSE 350 sectors has been half that of the narrowest range experienced in all other months this year, and a quarter of the exceptional spread of performances seen in April. The reduction in the extremes of performance experienced between sectors may be a sign that frayed nerves are finally mending, but it also leaves the overall market looking rather directionless.
In range
This month the FTSE 350’s worst performing sector, industrial engineering, dropped 10.1 per cent while the fixed-line telecoms sector took the top spot with a 9.3 per cent rise. Compare that with the range of performance in the preceding month of May when industrial metals registered a 34.2 per cent gain at the same time as investors in the electronics and electrical equipment sector were being hammered with a 10.4 per cent loss. The index itself looked relatively becalmed by comparison rising 3.7 per cent despite the subsurface turbulence.
Not such big movers
| Sector | Movement 31/5-29/6 |
|---|---|
| Best | |
| Fixed line telecom | 9.3% |
| Personal goods | 5.4% |
| Electronics & electric equipment | 4.2% |
| Techonology hardware | 4.2% |
| Pharmaceuticals & biotechnology | 3.7% |
| General Financials | 3.1% |
| Automotive & Parts | 2.7% |
| Beverages | 2.1% |
| General retailers | 2.0% |
| Household goods | 1.9% |
Worst |
|
| Industrial engineering | -10.1% |
| Oil & gas | -8.7% |
| Banks | -8.1% |
| Construction & materials | -7.5% |
| Mining | -6.6% |
| Gas/water/multi utilities | -6.5% |
| Travel & leisure | -6.1% |
| Media | -6.1% |
| Electricity | -5.4% |
| Non-life insurance | -5.2% |
Source: Thomson Datastream
Other months of 2009 have produced similar or more pronounced differences between sector returns. Sector performances in April ranged from a 76 per cent gain to a 2.9 per cent loss, a 25 per cent gain to a 13.5 per cent loss in March, an 8.1 per cent gain to a 32.6 per cent loss in February and a 51.9 per cent gain to a 21 per cent loss for the first month of the year. What's more, there's been little consistency between which sectors have been among the best and worst performers each month.
Where now?
The relatively narrow range of sector performances in June seems to be less about the market having found a new consensus and more about a new agnosticism. The recovery hype that characterised the market rally since March seems to have lost traction this month, with the blue chip index refusing to make ground on the 4,500 level for a while now. However, no fresh panic has set in either.
So while the market no longer seems willing to view "not as bad" as the new good, neither is it easily spooked after stomaching a barrage of truly terrible data at the turn of the year. Radical policy action may well have averted the worst, and that, it seems, is all that's important for now.
A lack of strong investment themes seems to be characterised in the diversity of the best and worst performing sectors in June. After a number of months in the doldrums, some defensive sectors have come back into vogue, with both pharmaceutical & biotechnology and the beverages sector among the top ten performers. However, they've found themselves rubbing shoulders with consumer cyclicals, such as the general retailers. And deeply troubled sectors, such as household goods, which principally consists of house builders, and automotive & parts, are also to be found among June's sector favourites.
While the relatively benign conditions seen in June may be a welcome relief following the highs and lows of the year to date, the signs that there's little real thematic direction is not good for momentum investors. However, while the market may look rather numbed by uncertainty about where we're headed next - be it inflation, deflation, a V-shaped recovery or L-shaped stagnation - there plenty of events that could potentially pull it out of this hiatus.
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