Corrections don’t send out invitations or phone ahead

The current correction began in April, a beneath-the-surface, sector-by-sector rattle that’s now caught the attention of everyone.

Nobody sent out an evite so you can stop searching your inbox. You probably didn’t get a voicemail about this ahead of time either. Sentiment shifts quickly, irregardless of fundamental rhyme or reason, and no one tells you about it in advance.

At first Utilities and REITS and other so-called low beta sectors began to trail the market, flattening out during broad market rallies and ceding leadership to techs and banks. Then they began an outright decline, joined by junk bond ETFs and MLPs.

This went on for a few weeks and then began to be noticed broadly. We had had these divergences before between some sectors and the overall market – but each of these divergences had eventually resolved to the upside all winter and spring long. It was a maddening pattern for the bears – weakness would be detected in trannies or small-caps or whatever and it looked as though the rally was in danger. Then the herd would come thundering into the laggard sector and suck up every stock in sight, thus rendering these temporary divergences meaningless.

Not anymore.

There is substantial technical damage across many of the sectors and asset classes that had led the rally since Thanksgiving. The S&P 500 has just printed it’s first back-to-back weekly loss since the rally began and the beatings have begun to leave a mark.

Have you seen the Mortgage REITs lately? Absolute shitshow – and these things were pitched as risk-off bond equivalents by brokers all year.

How about the pipeline stocks? They look like Amanda Bynes feels.

What changed? Why have the divergences stopped resolving to the upside?

The underlying cause is exhaustion, the proximate cause is the wake-up call Bernanke delivered to the market via Hilsenrath. US investors are also looking to Japan as a cautionary tale, what happens when exuberance takes hold too quickly and markets get cartoonish. As the Wu said, “You rolling like Trump, you get your meat lumped.”

This is all good. Better to be jolted back to sanity now than to go another six months plowing into alternative income vehicles at historically out-of-whack valuations. I was teasing them and calling the defensive stocks  dotcom names a month ago, we all laughed like bastards but you probably didn’t heed me. (see: When Defensive Stocks Plays Offense)

We took things a bit too far in certain sectors. What began as “The Search for Yield” became “The Hunt for Yield” which implied an aggression and a desperation that would soon turn into the “Chase for Yield.”  By the time it became “The Reacharound for Yield” it was obvious to seasoned players that it was time to do something else – utterly-ignored cyclical stocks were the obvious call.

Anyway…

So fine, the volatility is back. A little bit of fear is a good thing and getting the correction rolling now removes one of the key linchpins of the bear argument.

If this sector-specific pullback wants to “go wide” and knock the broad market down a peg (we’re already off 3% from the YTD peak), so be it. We’ve got a nice cushion and a long summer ahead.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. w88 commented on Sep 20

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]

  2. is bitcoin loophole safe? commented on Sep 21

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]

  3. blazing trader commented on Sep 26

    … [Trackback]

    […] Find More here on that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]

  4. thepoc commented on Oct 30

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]

  5. Digital transformation strategy commented on Nov 18

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]

  6. Regression Testing Solutions commented on Nov 28

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]

  7. paito warna sgp commented on Jan 30

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2013/06/03/corrections-dont-send-out-invitations-or-phone-ahead/ […]