Furey’s Insights

Small-Cap Thoughts: Increased Potential Bernanke Leaves Fed in Jan

06/18/13 -

Small-Cap Thoughts: Increased Potential Bernanke Leaves Fed in Jan '14
QTD Performance Led by Consumer Discretionary, Staples and Health Care

The market awaits the Fed post meeting comments Wednesday, which in our view will likely be a non-event.  What could be an event is Bernanke’s exiting the Fed Chairmanship and equity prices discounting the uncertainty surrounding a transition to a new unknown Chairman.  Late Monday (EST) Obama comments from the G-8 indicating Bernanke has stayed on longer than Bernanke desires increases the probabilities Bernanke leaves when his term expires Jan. 31^st, 2014.  Markets have a way of testing a new Fed Chairman and we don’t expect a Bernanke transition to be any different introducing an equity market risk.  It’s not a done deal Bernanke leaves but Obama’s comment Monday (and Bernanke not attending Jackson Hole’s August meeting indicate it’s increasingly likely Bernanke (wants to) exits the Fed.

• Dividend yield stocks are lagging badly recently and is signaling bonds and high yielding stocks may be out of favor.  Bullish for small-cap stocks.  Leverage is also falling out of favor, though less so than yield.
• The Consumer Discretionary sector is leading QTD relative performance, outperforming the S&P 600 index by 660 bps. 
• Our R2000 quality monitor indicates the higher quality quintiles have generally been underperforming QTD.

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