The Market Wrap 8-2-13

By Jason Fittler

The “Great Rotation” is the description for when investors roll their money out of one sector into another.

At present, it is being used to describe the move from cash, into shares, as investors and now worried more about the lack of income, then loss of capital.

But, is this really happening to any great degree? Since the market started its rally in July 2012, it has moved up around 20%. During the same period bonds prices have fallen 10% pushing yield up on bonds. This is a clear indication that money is moving from cash to shares but it is not happening fast, and there is a considerable fund still in cash.

Investors have moved from a fear mentality to a greed mentality, which is pushing the price of shares up as they worry about missing out. Companies are currently trading on high PE’s as investors chase income at the expense of capital.

We look deeper at the small and mid-cap stocks and note that they are not moving up with the market, which indicates that the current rally has no depth. 

We continue to see a pull back in the market this year.

Any weakness is an opportunity to buy.

The out of favour stocks and sectors, still look cheap, and can provide the next wave of capital growth. 

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