While the plight of bank and broker stocks has been highly publicized in the current bear market, asset management companies have also been taking it on the chin. As a whole, the wealth destruction caused by the recent bear market has caused the total dollar amount of assets under management by these firms to plummet. Many investors have been moving money out of stocks funds, or cashing out 401(k)s outright. The large number of redemptions has surely taken its toll on these companies.
Most asset management stocks have quietly been underperforming the S&P 500, and continue to show relative weakness. Often, a stock's relative strength compared to an index can clue a trader in to whether money is flowing in or out of a sector. It's very difficult to paint a bullish picture for a stock if relative strength is in a persistent downtrend.
For example, T Rowe Price Group (Nasdaq:TROW) has been declining versus the S&P 500 since last September. This means it has been underperforming the general markets the entire time, which is no small feat with the S&P 500 down by more than 35% in that period. Although relative strength has bounced recently along with the other financials, it is still in a downtrend and there are other negative aspects to this chart pointing to weakness. Notice that it fell out of a triangle consolidation and reversed sharply at a declining 50-day moving average. It is also overbought, as measured by the slow stochastics indicator.
Franklin Resources (NYSE:BEN) is another asset management firm showing relative strength versus the S&P 500 in a downtrend. In looking at the daily chart, BEN also broke under a consolidation range recently and is in the process of trying to bounce back into the channel. The stock is already overbought (as measured by slow stochastics) as it runs into a declining 50-day moving average, which could leave it vulnerable to a reversal.
The chart for Janus Capital Group (NYSE:JNS) is also showing weak relative strength, but with a few key differences. It was able to close above its 50-day moving average and volume was sharply higher on a move up. However, it is also overbought as it climbs into resistance, and could be vulnerable to a pullback.
Piper Jaffray Companies (NYSE:PJC) also broke under a lateral consolidation recently, and bounced quickly back into the range. Often this can warn of a bear trap, but PJC is also showing weak relative strength versus the S&P 500 and is overbought already. It also showed drastically declining volume on the bounce attempt, which is a bearish clue.
Often when the market rallies, it also carries weaker stocks with it. Relative strength in the markets is an important clue for traders to weigh, as it helps differentiate between a stock rising with the tide and the true market leaders. Often, stocks showing weak relative strength pull back deeper on the next move down in the general markets.
Do you think these stocks will continue to be market laggards, or are they close to breaking their downtrends in relative strength versus the S&P 500? Let us know what you think by joining the Investopedia Community.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.