Back in late July, I explained that there’s a gap between the market’s best-performing and worst-performing sectors – a spread, if you will. And this year, that spread has steadily grown larger.
The implications of that are two-fold:
- It’s a worrisome sign that investors are growing distrustful of the bull market… as they’re becoming very picky about the stocks they do want, and the ones they want nothing to do with!
- It also creates lucrative opportunities for investors who buy top-performing sectors and sell (or short) underperforming sectors.
And as you know, investors’ distrust of the long-lasting bull market became obvious on August 20, as stock markets around the world sold off sharply – between 0.9% (Russia) and 13.3% (Brazil and Hong Kong).
As I dig deeper, I’m seeing the spread between world stock indices is large and growing larger. Through the end of August, Russia’s stock market is up 15%, while Brazil’s is down 32%! Meanwhile, the S&P 500 is posting a mild loss, just under 4%. So, just as investors are getting extremely picky about which market sectors they want to own, they’re also being highly selective when it comes to different countries’ stock markets.
And this growing divergence could be a canary in the coalmine for the global equity bull market that’s lasted for seven years now.
In 2007, the spread between top- and bottom-performing sectors in the U.S. stock market was at its highest level in years. So too was the spread between the stock markets of the top-15 world economies. And that divergent performance was a warning sign that the bull market that began in 2002 was ending.
You see, while sectors and markets move in unison during a bear market crash… the opposite occurs leading up to a bear market crash. And whether that bear market comes quickly or slowly, market divergences that unfold leading up to the end of a bull market are particularly lucrative for investors who know which horses to bet on, so to speak.
Chief Investment Strategist, Dent Research