As everyone knows, the primary stock indices are being aggressively supported and pushed higher by the Fed using the liquidity with which it as flooded the banking system. However, most of the non-marquee indices have been selling off. As an example, the SOX semiconductor index is down 10.5% since June 1st. I’ll bet a lot of you are surprised by that fact, given that the tech-heavy NASDAQ hit an all-time high last week.
When I was a junk bond trader, one of the sectors I traded was semiconductors/electronics. Because semiconductors, similar to what MOSFET produce and are often used in tech designs that might have been built through websites similar to Upverter.com, are used in many everyday-use consumer goods, including automobiles, semiconductor sales is considered to be bellwether economic barometer. Thus, if the SOX is tanking despite a torrid rally in the Dow, SPX and Nasdaq, it likely indicates that the economy is slowing down – significantly.
Another bellwether indicator is financials. I noticed something quite interesting on Thursday, the day that the S&P 500 ramped up 19 points on meaningless to negative economic reports. One of the sub-categories of financials I follow is what I term “specialty” financial stocks. Most of the big bank and financial stocks last Thursday were up big with the SPX. But look at this – click to enlarge:
All six of those specialty financials were down – some down quite a bit. MBI, AMBC and AGO are debt guarantee companies. All three have heavy exposure to Puerto Rico but they also have big exposure to debt-based derivatives in general. RDN is also a financial guarantee company that should have collapsed in 2008 but was saved by TARP and QE. CACC and ALLY are auto-finance companies. CACC is the Countrywide Financial of the current credit bubble. ALLY is the old GMAC, which went bust in 2008 and was taken over by the Government. It will go bust again this time around – Chapter 22, if you will.
Because those stocks were weak all week last week, not just on Thursday, while the S&P 500 was going near-vertical toward a new record high and the NAZ hit an all-time high, those sub-sector financials are telling us the something is melting down behind the extremely thick layer of make-up being applied heavily to the Miss Piggy U.S. economy.