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business newsThe Stock Market Diet: Why the Bull Can Continue
Food and beverage stocks are failing to keep up with the market's move higher, and that's a good thing.
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--Irv Kupcinet
I've always thought that one of the more innovative ticker names in the ETF space is (PBJ), which is the PowerShares Dynamic Food and Beverage ETF. About 80% of the ETF has assets in common stocks of food and beverage companies. What this means is that the ETF tends to be less cyclical and sensitive to the broader stock market. After all, even if Europe implodes, we all still need to eat and drink. From an investment standpoint, traders position into these companies when they want exposure to stocks but are concerned with an economic slowdown and want less exposure to the overall economic cycle.
Having said all that, take a look below at the price ratio of PBJ divided by the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/PBJ is outperforming (up more/down less) the denominator/IVV.
It should make sense that the group underperformed markets following the March 2009 low as the recovery took place. Notice for most of 2012 (up until really when QE3 was initiated), food and beverage companies substantially outperformed the S&P 500. Also notice how a real uptrend occurred throughout 2011 leading up to the Summer Crash. The ratio for this year has since collapsed and appears to now be in a firm downtrend.
This is quite a bullish sign for markets, as it suggests that money is moving out of defensiveness and into more aggressive beta plays in the stock market. More so than that, the trend appears very early and has potentially a long way down to fall should 2012 be the year of reflation. This would be particularly true if the bullish behavior of the stock market (lower correlations/volatility and an uptrend) continues. Looks like the stock market's shunning of food and beverage makes for a good dietary environment to be bullish. And if you want more reasons for why I believe the bull continues, have a listen to my most recent CNNRadio interview (at the five-minute mark).
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