O petróleo está em queda, mas a incerteza continua em alta

[Keyser Soze]

The Return of Muddle Through
by John Mauldin
September 28, 2007

(...)

A Bull Market and a Recession?

Changing pace, as most readers know, it has been my contention for almost a year that the bursting of the housing bubble would result in a mild recession or at the least a serious slowdown. And a recession has always meant a full blown bear market in the stock market (an average drop of over 40%). But even if there is a recession, there may be reason to argue that the large cap market indexes will not see as severe a drop as has been the case in the past. Why not?

I ran across an interesting thought by Michael Albert on his blog at www.leadlag.com. We corresponded and he made the following charts for me. Notice that certain sectors of the S&P 500 are on a tear since the first of the year, like energy, material and technology.



The sectors that are outperforming are all large multi-nationals that get as much as 50% of their earnings from outside the US, and the global economy is doing well. Those that are not doing well are tied to US domestic consumer spending and the financials.

Now let's look at the weightings of the various sectors in the S&P 500. Notice that almost 60% of the cap weighting is to industries that get a good portion of their earnings from overseas, or are largely insulated from a slowdown in overall consumer demand (like healthcare which you buy when you need it, not generally as a discretionary item). Utilities should do well in a falling interest rate environment.



If we saw a 30% drop in the 40% domestically impacted sectors (with healthcare and utilities basically flat) and a 10% rise in the rest, that would be an overall drop of only about 7%, which is not much of a bear market in the total index, although there would be sectors that are ugly.

That also argues that large cap multinational stocks will outperform smaller firms. The Dow will beat the Russell 2000, as an example. This may be one reason that legendary fund manager Bill Miller of Legg-Mason, who beat the Standard & Poor's 500 Index for 15 straight years until 2006, is rotating out of mid-caps and into very large caps, to insulate himself from a potential slowdown or recession.

(...)