Bourses on the bid

05/31/19
  • Exchange stocks have outperformed the market during latest downturn
  • Trading volume has tended to soar during periods of market stress
  • Also: Yesterday’s rally followed an SPX-VIX “bounce” signal

With the bulls on vacation since early May, the usual defensive suspects—real estate, utilities, health care, and consumer staples—have been the strongest sectors in the S&P 500 (SPX), although they’re simply in the red less than others.

But one small group of stocks has done the defenders one better by continuing to power higher for much of this month: exchanges.

As in financial exchanges, like the Intercontinental Exchange (ICE, operator of the New York Stock Exchange), CME Group (CME, futures), and the Cboe (CBOE, options).

Although these stocks still lag the S&P 500 (SPX) year to date, over the past couple of months they’ve left the broad market in the dust, especially since early May:

S&P 500 (SPX), CME Group (CME), Intercontinental Exchange (ICE), Cboe (CBOE), 3/21/19–5/30/19. Outpacing the market.

Source: Power E*TRADE


There’s some logic to the argument that financial-exchange stocks outperform during market downturns because these companies make money on trading volume, and when traders are nervous—and especially when the market is selling off—the more trades the exchanges rack up.

The chart below shows how ICE, CME, and CBOE stacked up against the SPX during last year’s October–December mini–meltdown. While the SPX was still down around 13% a couple days into the rebounding New Year, the exchange stocks were slightly in the green.

S&P 500 (SPX), CME Group (CME), Intercontinental Exchange (ICE), Cboe (CBOE), 10/1/18–2/4/19. Held up under pressure.

Source: Power E*TRADE


If market uncertainty persists, traders may be looking at pullbacks in these stocks as attractive plays, regardless of which way the broad market heads.

Market Mover Update: Yesterday’s modest intraday stock rally may have seemed anemic—the market slipped into the red late in the day—but volatility-minded traders may have noticed that it came one day after an interesting signal from the S&P 500 (SPX) and the CBOE Volatility Index (VIX).

While the SPX made its lowest low (and close) since March 11 on Wednesday, the VIX, which tends to spike higher when the market is selling off, made a much lower high than it did on either May 9 or May 13—when the SPX was trading at higher levels.

The implication: The VIX registered a lower level of “fear” as the stock market was falling to new lows. The following chart shows a similar disconnect between the SPX and the VIX on May 13, when the SPX fell below its May 9 low, but the VIX made a lower high than it did on May 9:

S&P 500 (SPX) and Cboe Volatility Index (VIX), 4/29/19–5/30/19. Less VIX anxiety as SPX dropped.

Source: Power E*TRADE


As the chart highlights, though, these signals are not necessarily evidence of major bottoms, although they can sometimes be followed by short-term bounces, such as the one that followed the May 13 low. But experienced traders would also likely view a quick downside penetration of the most recent SPX low as a sign of weakening bullish nerve, and a possible sign of more downside to come.

Zillow Group (ZG) jumped more than 2% yesterday despite a weak Pending Home Sales Index number that punished most home-building stocks.

Today’s numbers (all times ET): Personal Income and Outlays (8:30 a.m.), Chicago PMI (9:45 a.m.), Consumer Sentiment (10 a.m.), Baker-Hughes Oil Rig Count (1 p.m.).

Today’s earnings include: Big Lots (BIG).

 

Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.


What to read next...

05/30/19
Tech stock in a bull-bear battle as price reaches a critical low.

05/29/19
Another big deal in the payment-processing space turbo-charges an already-hot industry.

05/28/19
Market seeks to exit trade-war congestion.

Looking to expand your financial knowledge?