Not the Beginning, But the End

The following is another example of the broader range of content you can expect to find at my soon-to-be-launched website, Panzner Insights (though it seemed to be a good fit for Financial Armageddon, too):

There has been a changing of the guard with respect to which style has performed best when investing in companies of a certain size since the overall market rally began on July 1st.

During the early stages of the move, small cap growth shares outperformed their value-category counterparts by a notable margin; since late-July, however, things have gone the other way. In contrast, large cap growth languished early on, but has outpaced its value category counterpart over the past six weeks.

While its hard to say for sure what accounts for the divergence, one theory is that:

• hedge funds and other institutions that had been on the sidelines during the early stages of the run-up were forced to jump in and try to play catch-up by buying the more volatile (but more liquid) large cap names (i.e., growth);
  

• small investors and others who tend to focus on small cap issues have become more defensive amid deteriorating economic and industry-specific conditions.
  

If true, this assumption would tend to support the notion that the recent strength in the market has been driven by towel-throwing and performance-chasing rather than a fundamentally-inspired change of heart.

In other words, it's the sort of activity you would expect to find near the end of a move, rather than at the beginning of another leg up.

Michael J. Panzner