Friday, January 25, 2008

The World Crashing in Harmony

Here's more evidence that the market's current decline is not like all of the other corrections that we've had over the past few years:

The S&P 500, Europe and Japan, (EFA) and Emerging Markets (EEM) have all been falling in virtual lock-step since the S&P's October 9 high. The same is true if you break the market down by large/mid/small cap or value/growth.

If you look back at previous corrections, you won't see this cozy herd behavior in the indexes. Emerging Markets had been leading the charge in previous dips - diving more steeply in the beginning and remaining well below the S&P and EFA until the correction had ended. This time around, Emerging Markets actually continued to climb gradually for several days after the S&P had already begun its descent. And now, incredibly, all indexes are still within 2% of one-another.

This can only mean one thing: for the first time in a long while, investors around the globe are buying and selling all stocks as a block without differentiating between them. Call me crazy if wish, but that sounds a lot like long-term investors pulling their money out of global index funds.

1 comment:

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