The Dog Days of Betwixt and Between

excerpts from this week's "Sectors and Styles Strategy Report" commentary (published yesterday):

idiom: Betwixt and Between
“neither the one nor the other; in a middle or unresolved position”

The past ten days have seen a drift in US equities with a certain amount of sector turmoil, mostly Financials up and Energy down (see first chart, with Utilities the biggest loser). From a size perspective, the bear rally produced the beta trade with Micro and Small cap doing exceptional well (second chart).

While the bear rally has produced a respite from the well publicized (and I would argue near term overplayed) angst emanating from the twin disasters of banking losses and high energy prices, the far more important stagflation lite with “no end in sight” for both bank losses and housing (which are becoming mutually exclusive) looms large in the 2009 background.

In the meantime, for the remainder of this year the top-down derived $82 operating earnings for 2008 for the S&P 500 seems more and more on target as the bottom up analysts slowing come to grips with reality (see page 3*).

Absent a meaningful catalyst, it is hard to see how leaning one way or the other at this time makes strong investment sense. Marking time and exploiting what little super short term trading opportunities might present themselves may be the best approach as the dog days of summer roll on.

Investment Strategy Implications

The idiom “betwixt and between” seems most apt for the current economic and investment climate suggesting the market neutral position I noted in last Thursday’s blog posting. No doubt time will present the next “great” investment idea. Until then, forcing the issue seems destined to destroy alpha.

*see report. For subscription information, click on the newsletter link to your left.