Global Investing

It’s 2 o’clock. Let’s buy shares

It’s 2 o’clock. You’ve had your lunch. Now what should you do?

Buy shares, if you follow what U.S. bank Goldman Sachs has found from trading patterns among major U.S. equity indices and ETFs.

According to Goldman’s analysis, the S&P 500 index has tended to do substantially better during the last two hours of trading.

Since the start of 2008, the index increased by an average of 11 bps per day between 2pm and 4pm. In contrast, between 9:30am and 2pm, it declined by an average of 24 bps per day. This translates into a cumulative return of 35% for holding the S&P index between 2pm and 4pm versus -54% for holding it between 9:30am and 2pm.

Interestingly, returns after 2pm depend critically on how the S&P traded up until then. When the S&P is down between 9:30am and 2pm, the subsequent 2pm to 4pm return has averaged -6 bps since the start of 2008. In contrast, when the S&P is up by 2pm, the subsequent return has averaged 33 bps – a difference of about 39 bps.

This pattern has become even more pronounced since the bear market intensified. Since October 2008, the S&P rallied, on average, a further 101 bps towards the end of trading if the market was already up by 1% at 2pm. If the market was down 1%, the S&P lost, on average, 10 bps in the last two hours of trading.

One Minute Manager

One minute, one manager. An occasional word about what to expect from the economy and financial markets. Today is Giles Keating, global head of research at Credit Suisse Private Bank.

It is time, Keating says, to prepare for a bottoming out of the global economic downturn.

For better or worse?

Wealth managers at Citi Private Bank are telling their clients to stay neutral in their exposure to hedge funds at the moment, whether the strategy be event driven, equity long/short or macro. The main reason is that capital markets are still stressed and many hedge funds still need to deleverage.

The firm points out, however, that hedge funds had a good news-bad news kind of year in 2008. Based on the HFRX Global Hedge Fund Index, it was the worst performance on record. The index lost 23.3 percent. Its next worst performance was 2002 — and that was only a 1.5 percent decline.

Losses were widespread across all kinds of strategies. Only merger arbitrage and systematic macro gained anything. 

A dish best served cold

Alain Grisay, the softly spoken CEO of F&C Investments, was in a wry humour at F&C’s annual press seminar for European journalists on Thursday.

Fresh from his bout with the UK’s Treasury Select Committee on the causes of the banking crisis, and enjoying a respectable set of fourth quarter figures, Grisay is in the rare position of having come through the storm with his house intact. “We have just gone through an unrequested market stress test that confirms our model works,” he said. “We were able to report resilient results for the year and took the market by surprise.”

His company has been viewed as boring in the past by market commentators, but Grisay observed drily that in some quarters F&C is now viewed as a “must have”.

Slip slidin’ away

Thomson Reuters Research and Estimates finds that the blended growth rate for S&P 500 companies for the fourth quarter of 2008 now stands at -28.1 percent.  The blended growth rate combines actual earnings reported with estimates of those yet to come. What a decline.  On July 1st, the estimated growth rate for Q4 2008 was 59.3 percent; on October 1st, the estimated growth rate for Q4 2008 was 46.7 percent; and on January 1st, the estimated growth rate for Q4 2008 was -1.2 percent. If the final growth rate for Q4 2008 is -28.1 percent, it will mark the first time the S&P 500 has recorded six straight quarters of loss since Thomson Reuters began tracking earnings growth rates in 1998.