As it turned out, the market was undaunted by the S&P negative outlook on U.S. debt.After the initial shock wore off, which took one down-day last Monday, the market bounced back and was quite positive for the rest of the week.
I would have predicted a flight-to-safety after such news, with investors flocking to large-cap value stocks. But exactly the opposite happened. As you can see from the market stats, Large-cap Value was the worst-performing cap/style last week, up +0.60, and Large-cap Growth was the best, up +2.09.
And those sectors known as bastions of safety in a fearful market – Health Care and Public Utilities? Both were close to the bottom in sector performance. (Here are the market stats.)
So am I crazy – or is the market? Or perhaps both of us?
We can look at the economic reports to try to make some sense out of it. Twice last week, we had excellent numbers from the housing market, with housing starts and permits both up, as were existing home sales (and today, new home sales came in better than expected, 300K versus the expected 280). So it should not be surprising that the Consumer Durables Sector came in second in performance. (Technology came in first, probably because tech stocks, in general, reported better-than-expected Q1 earnings, notably, Intel [INTC], Google [GOOG], and Apple [AAPL]).
Since initial jobless claims did come in worse than expected last week, as did the Philly Fed, one would have expected today to be quite a solid day in light of last week’s odd market behavior but . . . wrong again.
The market did little or nothing most of today, with the S&P 500 closing at 1335.25, down -0.16%.
It could be that the market is waiting for the deluge of important economic reports due out this week. On Tuesday we’ll see the consumer confidence report, and on Wednesday, durable goods and the FOMC interest rate announcement. On Thursday we get the weekly initial jobless claims and our first look at Q1 GDP; and on Friday we have personal income, Chicago PMI and Michigan sentiment.
The centerpiece of the week would normally be Thursday’s GDP report, but this week the report has been upstaged by Chairman Bernanke’s announcement that he will hold a press conference following Wednesday’s FOMC meeting. Perhaps he’s going to tell us what comes after QE2.
Looking forward, the Sabrient SectorCast remains relatively unchanged, forecasting that Basic Industries, Health Care and Energy will lead the way this week. Transportation is projected to stay at the bottom (where it indeed was this past week), along with anything all sectors related to consumers.
Until we see how the economic reports shake out, I would advise strong caution for the week.
4 Stock Ideas for this Market
In a cautionary mood, I used the GARP (growth at a reasonable price) preset search in MyStockFinder (http://MyStockFinder.com) and restricted the search to SectorCast’s four highest ranked sectors. Here are four stock ideas from that search.
Freeport-McMoRan Copper & Gold Inc. (FCX) – Large cap, Basic Industries
Banco Bradesco S.A. (BBD) – Large cap, Finance
Stone Energy Corporation (SGY) Large cap, Energy
Harvard Bioscience, Inc. (HBIO) Small cap, Health Care
Until next week,
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research
Full disclosure: The author does not personally hold any of the stocks mentioned in this week’s “Stock Ideas.”