What the Market Wants: Big-time Flight to Safety

Big-time Flight to Safety

by David Brown, Chief Market Strategist, Sabrient Systems

Investors finally got fed up last week with disappointing economic news at home and ominous signs from the PIIGS abroad (Portugal, Italy, Ireland, Greece, and Spain), and sent the market reeling. They retreated to large-cap value stocks in the Consumer Non-Durables, Utilities, and Health Care sectors.

You can't get much closer to a classic fight-to-safety.

Growth-related sectors, such as Finance, Technology, and Transportation were shunned, which sent them to the bottom of the performance ladder (see stats below) for the week. A warning from Texas Instruments (TXN) on Wednesday about its earnings outlook added to Technology's poor performance.

Treasuries were strong, which is further evidence of the bulls running for the hills. The VIX woke up from its long slumber and gained 5% for the week, reflecting the market's fears. Oil was down sharply and the dollar was up in light of Europe's woes, but that didn't help the market. Today it battled mightily but barely succeeded staying above zero.

It's not clear how much S&P's downgrade of Greece's sovereign debt (to the lowest possible rating, CCC) affected the market, but the Nasdaq and small-caps are now negative for the year, while the S&P 500 is up barely 1% for the year.  

Market Stats. The leading cap/style last week, Large-cap Value, was down -2.18%; the worst, Small-cap Growth, lost -3.73%.

All the sectors were negative as well, with the flight-to-safety sectors the least negative: Consumer Non-Durables, -1.73%; Utilities, -1.92%, and Health Care, -2.00%.  Finance, Technology, and Transportation were all down about-3% or more.

Looking Ahead.  The S&P 500 is technically quite negative, but it remains above the 1275 support level, down from a peak of 1363 on April 29.

Our only hope for a more positive investing environment would be better news from Europe or some really good numbers from this week's plethora of economic releases. We have retail sales and PPI on Tuesday; CPI and industrial production/capacity utilization on Wednesday; initial jobless claims and housing starts/permits on Thursday; and LEI, Philly Fed, and Michigan sentiment on Friday.

Woe is us if the numbers are negative.

I would urge caution in the current market. Our outlook rankings continue to favor Basic Industries, Energy, and Transportation, probably due to the fact that all three sectors are more beaten up than the others, but we can always find some good stocks in virtually any sector. I would, however, choose small caps very carefully.

4 Stock Ideas for This Market

This week, I started with the GARP (Growth at a Reasonable Price) preset search in MyStockFinder (http://MyStockFinder.com). I then included Buys (in addition to Strong Buys) and up-weighted Technicals. Here are four stock ideas from my search:

PolyOne (POL) – Basic Industries
Frontier Oil (FTO) – Energy
Union Pacific (UNP) – Transportation
Kadant (KAI) – Capital Goods

Until next week,

David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research
and http://Twitter.com/ScottMartindale

Full disclosure:  The author does not personally hold any of the stocks mentioned in this week’s “Stock Ideas.”

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 their personal financial 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.

What the Market Wants
david / Tag: FTO, KAI, POL, sectors, TXN, UNP /