What the Market Wants: Positive News Propels Market
By David Brown, Chief Market Strategist, Sabrient Systems, LLC
David Brown
Initial signs of market weakness on Friday and again today (Monday) resulted in immediate support arriving to drive it back up. The underlying bid continues. Now that the bigger players are returning to their desks, volume should return, as well. So I’ll be interested to see which way it wants to go in the near term. A correction to the summer gains has become so anticipated that it might not happen…but I’m staying cautious.
Last week was a short market week, one that was packed with fairly positive economic news, with one major exception. There was a very positive surprise in heightened consumer confidence; jobless claims were somewhat better than expected, although still rather poor; and we had a positive wholesale inventory report. There was even new positive guidance from several larger companies, including Campbell Soup (NYSE: CPB) and FedEx (NYSE: FDX).
The exception was a nasty increase in the trade deficit, and even that could be looked at positively, although I certainly thought it was negative.
The market responded with quite a nice gain for the short week, with all versions of small caps up more than 5%, led by Small-cap Value at nearly 5.7%. Most versions of mid-caps were up between high 3% and low 5%, and large-caps were up approximately 4%. Large-cap Growth was the laggard, if that be a fair statement with a 3.8% gain for the week.
Broad Gain for Sectors. The increase was quite broad across all sectors. Energy led the way up more than 7% with Industrials, Materials, and Telecom all increasing more than 6%. Utilities brought up the rear, up 1.7%, with Consumer Staples the second worse, up 3%.
With so many positive expectations for the economy, it is not surprising that the Airlines and Air Freight industries were up more than 10%, along with Marine and Building Products. Even Energy Equipment & Services in the 5th spot was up nearly 10%. The only negative industry in the large industry grid was Food and Staples Retailing, down 0.1%.
The S&P 500 reached a new high for the year of 1044, with just a small two-point drop on Friday, perhaps reflecting profit-taking before the weekend.
International Concerns. Somewhat unexpectedly, concerns grew internationally over the weekend about trade issues, particularly those between China and the U.S. A myriad of other issues, have affected today’s market, including President’s Obama’s address this morning on Wall Street.
Overseas markets were down sharply last night, and our own market is facing a losing battle at trying to stay even. The S&P 500 is down one point, as I write.
Looking Ahead. Looking forward, we should note that several very large companies have scheduled substantial secondary offerings over the next 30 days, which is frequently a drag on the market. Our forward-looking rankings continue to have Utility, Energy and Health Care leading the sectors, with Financials, Materials and Technology at the bottom.
So despite the new high and the market’s euphoria, there is enough negative background noise to remind the prudent investor to continue taking profits on fully valued investments and searching carefully for bargains in the more robust industries.
Click here for the weekly market stats.
Stocks to Consider. This week, I ran a MyStockFinder search (http://MyStockFinder.com ) using the Undervalued Large-Cap Growth preset search, but I also included mid-caps and up-weighted Technicals. Here are a variety of stock ideas that look intriguing from some of the top-ranked sectors:
Community Health Systems, Inc. (NYSE: CYH) – Healthcare
CONSOL Energy, Inc. (NYSE: CNX) – Energy
Corinthian Colleges, Inc. (Nasdaq: COCO) – Consumer Discretionary
Universal Corporation (NYSE: UVV) – Consumer Staples
Until next week,
David Brown
Chief Market Strategist
SABRIENT SYSTEMS, LLC
Leaders in Investment Research
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Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.