Where's the "Big Money" Headed Now?

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Where's the "Big Money" Headed Now?: "First, despite the uneven market at the start of this year, it is important to keep one thing clearly in mind:�Group 20 central banks and governments still uniformly believe that their monetary and fiscal policy should be oriented toward boosting growth,�not curbing inflation."

Second, this year is shaping up much like 2004. That year saw a 100-point range in the Standard & Poor's 500 Index between 1,150 and 1,050 for the first nine months of the year. The trading phenomenon known as "trend extension" was lacking then, much to the dismay of participants who were looking for strong trends and breakouts like the prior three years. We're seeing that again this year, no doubt. So the analog with 2004 is tracking quite closely -- almost uncannily so, given that the 1,050-1,150 range is virtually identical.

Third, so far this year only currency markets in the United States, United Kingdom and Europe have exhibited trend extension outside of ranges seen in the last quarter of 2009. All other markets -- equities, commodities, bond and emerging markets -- have either been characterized by erratic range-trading or mean-reversion back to Q4 2009 ranges.

The real story is that we are seeing a separation of performance between cyclical and non-cyclical corporations -- which is exactly what we would expect coming out of a recession. Removing the financials (since they are in unique circumstances at the moment), cyclical stocks have reported 25% year-over-year earnings growth according to Golub. Compare this to the relatively flat earnings growth by more defensive companies, such as health care, utilities and soap makers.

Technology and semiconductor stocks have reported especially strong earnings. In Golub's words, tech stocks have been "knocking the cover off the ball, posting top-line and bottom-line growth of 11% and 62%." See below for new exposure to the sector to try to take advantage of combination of healthy profitability and the unhealthy investor skepticism.


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