High beta sectors are approaching historic high rate of multiple appearances on stock screeners, with beta (consisting of financials, materials, consumer discretionary, industrials, and IT) making up 79% of multiple appearances compared to low beta sectors which are just 21% of multiple appearances.
“The low / high beta split is approaching historical extremes,” writes Morgan Stanley analyst Ronan Carr. The last two times the split was this wide were in July 2007 and mid-2010. “The former coincided with the end of the mid- 2000s bull market. In the latter period, MSCI Europe did experience a sizable tactical correction in April/May 2010 but then went on to deliver strong returns in 2H10 before peaking in February 2011.”
Carr argues that this split in high beta/low beta multiple appearances could mean that the market is heading for another correction like in 2010, but warns that sentiment can drive growth during a bull market even when you might expect a price dip.
Carlson Capital's Double Black Diamond fund added 3.09% net of fees in the second quarter of 2021. Following this performance, the fund delivered a profit of 5.3% net of fees for the first half. Q2 2021 hedge fund letters, conferences and more According to a copy of the fund's half-year update, which ValueWalk has been Read More
Financials’ share of multiple appearances hit 17.5% since the last quarter, reaching the highest rate since the financial crisis. This is still below its pre-2007 peak, and below the sector’s market cap share. It’s also far below the clear frontrunner as far as this metric is concerned: cyclicals have a 61% share of multiple appearances. Consumer discretionary is the biggest sector within cyclicals with a 25% share, followed industrials which have a 19% share. Defensives and consumer staples both fell this quarter, and both are below their historic average shares.
“Sector conclusions here correspond well to the consensus views on sectors at our Global Insights Day (positive on Financials and Tech, bearish on Energy and Utilities),” writes Carr.
Optimistic consensus growing
“The polling of clients at our Global Insights Day event in London last week indicated a relatively tight and optimistic consensus among investors,” writes Ronan. Most expected strong DM growth, 47% thought the S&P would rise 5% by the end of the year. He reports that investors don’t give the impression of being wildly optimistic, but the unusual level of agreement could be worrisome in and of itself. “With an increasingly tight consensus, we advise investors to be on high alert for any potential turning point in the coming months.”