Wednesday’s market indexes were basically unchanged on the day. Don’t confuse that results with no activity in the markets, there was plenty. Breaking the sectors down didn’t add any excitement either as Energy was the best performing sector up 0.4% for the day. However, if you dig into energy you find Noble up 3.6%. The point is simply that there are individual stocks or ETFs jumping higher than the broad market. The conviction from investors relative to the market overall is lacking. Thus, the challenge going forward.
The S&P 500 index has close at or within a couple of points of 1472 over the last five trading days. That shows a market without conviction currently… in either direction. Volume has been on the light side as well. Thus, the question begs… what is the catalyst that will lead the markets higher? Is the issue of the debt ceiling looming keeping the market in check? What exactly are investors looking for? You know if I had the answer, I wouldn’t tell. But, in all sincerity this is an issue looking forward.
Earnings have been okay… nothing to jump up and down about. Goldman Sachs and JP Morgan beat expectations, but not impressively enough to push the financials up more than 0.06% on the day. Ebay beat earnings on Wednesday night, barely, and the stock was up 1.5% in after-hours trading. Apple bounced back 4% to lead the NASDAQ, but still too many concerns looking forward. Nothing in the data to light a spark under investors currently.
Economic data has been lackluster as well. The Fed Beige Book was blah! No real growth to speak of overall, and did nothing to help. Home-builders remains at a six-year high, but missed the expected bump higher on Wednesday’s data. Inflation remains flat as gasoline prices remain in check, but with the new payroll tax increase for consumers those benefits are being offset. Big Ben Bernanke stated there was no real risk in the bond-buying from the Fed (confidence builder). Bottom line, we are not seeing any growth in the economy that will spark a rally from investor optimism.
Scanning the sectors for leadership turns up the same suspects. Consumer Services (XLY) as seen in the chart below, has become the leader on the retail sales data released on Tuesday. Financials are moving sideways currently, but they have provided solid leadership to this point. Materials, Healthcare and Industrials have paused the last five trading days near the highs. Consumer Staples (XLP) has been on an upward trek back towards the December highs. Technology has suffered at the hands of Apple, Utilities are moving sideways and telecom has decided to sell off again. In conclusion to that diatribe, nothing is really taking on leadership enough to lead the broad markets higher at this point. Our concern… the longer this exists the greater the potential for a negative sentiment to evolve and push stocks lower. Thus, we remain cautiously optimistic with our stops in place.
Commodities, global equities and bonds, real estate, fixed income and currencies are all acting much the same way as the US stock market… moving sideways and looking for a catalyst. The key is to manage the risk of each position in your portfolio according to the objective you set out when buying it. Time frame will determine the risk on the downside. Set your stops accordingly and don’t change your objective midstream. Stay focused and most importantly, remain disciplined.