Death, destruction and chaos. No we’re not talking about the action in small-company stocks, but the arrival of Godzilla, the $160-million remake of the classic 1954 film of the same name. The film has everything you’d expect from a summer blockbuster featuring the god of all monsters battling out with giant bugs–and destroying parts of San Francisco and Las Vegas in the process. This Godzilla is getting surprisingly good reviews–and is even being compared to some classic monster flicks, besides. Salon’s Andrew O’Hehir calls Godzilla “one of the most intriguing big-budget breakthrough films since Steven Spielberg made Jaws.” The Dallas Morning News’ Chris Vognar claims “Godzilla conjures the most jaw-dropping giant monster sequences since the original King Kong.” The San Jose Mercury News’ Tony Hicks says “This is the Godzilla fans have been waiting for, and any other big budget summer action flick will be hard-pressed to equal the fun.” No wonder Box Office Mojo anoints Godzilla the weekend winner with a projected haul of $73 million.
The stock market, meanwhile, avoided destruction to live another week. The S&P 500 finished the week down just 0.03% at 1,877.86, while the Dow Jones Industrial Average dropped 0.6% to 16,491.31 and the small-cap Russell 2000 declined 0.4% to 1,102.91. The Nasdaq Composite even gained 0.5% to 4090.59.
Cisco Systems (CSCO) gained 5.9% this week, making it the Dow’s biggest winner, after beating earnings and revenue forecasts. Wal-Mart Stores (WMT), however, lost 2.8% after its same-store sales slid for a fifth consecutive quarter.
Nordstrom (JWN) gained 15% this week after beating earnings and announcing that it would try to sell its credit card receivables, while Fossil Group (FOSL) plunged 7.8% to $101.90 after offering disappointing guidance, making it the benchmark’s biggest loser. Keurig Green Mountain (GMCR) gained 5.5% after Coca-Cola (KO) upped its stake in the company.
Stocks might not be getting crushed, but hedge funds are. Citigroup’s Robert Buckland and team marvel at the destruction:
As global equities grind higher in 2014, hedge funds (HF) have struggled to post positive returns. Problems have been especially acute in recent months. Since the start of March, global equities are up 2% but the HFRX Equity Hedge Index is down 3%. This is the first time on record (the HFRX index starts in 2003) that HFs have lost money for three consecutive months in a rising market. Figure 2 shows that it's not uncommon for equity hedge funds to lose money, especially in falling markets. But what makes the current losses unique is that they are happening against a
benign overall equity market backdrop. The losses last summer were all about beta – markets struggled to digest the oncoming Fed taper. But the latest hedge fund losses are all about alpha – macro factors cannot be blamed.
Marketfield’s Michael Shaoul recommends investors focus on small caps:
Over the last two weeks little was resolved as far as the US equity market is concerned. The large cap SPX index eked out a marginal new all-time closing high at 1897.45 on Tuesday, but this is a misleading representation of the overall state of affairs since the small cap RTY [Russell 2000] index remains close to key support at the time of writing. The latter is probably the key to the current battle between consolidation and correction and if the RTY were to break down below its February low at 1082 (just under 2%below Wednesday's close) then the risk of a more disorderly period of broad liquidation would rise appreciably. If on the other hand the RTY index can find a reliable bid the odds of a breakout by the stronger parts of the market would be positively affected.
Consider it good news, then, that the Russell 2000 finished where it did.
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