“Buy the Rumor, Sell the News.” Today was a pretty good example of this famous Wall Street phrase.
2nd Quarter GDP got announced early this morning at a +4.1% clip, the strongest growth the economy has seen in around 4 years for the economy. Markets hung in early and then we began to see our first decent selling in quite some time finishing the day down over 1%, but still up 0.6% on the week for the S&P 500 index.
The market has had a pretty stellar run off the late June bottom just undercutting 2700 on the S&P 500. The market bottomed right into the heart of the Trade War headlines heating up. Amazingly we saw Equity Market outflows from market participants rivaling that of the financial crisis the last week of June and subsequent 4th of July week! A quick +5.7% move higher in the S&P 500 into yesterday’s peak in a few short weeks is a normal place to rest. In fact, this week saw the first Equity Inflows since that stated market bottom. Likely those same market participants, whom exited stocks into late June lows, began buying their positions back 5% higher. The market can be cruel sometimes, especially trying to game the headlines.
The market attempted to take an area close to the January Peak and all-time highs of 2872. We saw a high this week of 2848, before today’s sell off. It isn’t surprising we got the “Sell the News” reaction to the 4% GDP print as the market rarely breaks out of prior resistance on the first attempt.
What we continue to pay close attention to: the action and fundamentals under the surface. We put out a TGIF back in early June as well as our Summer Quarterly Newsletter reiterating the importance and need for Industrials, Financials, Health-Care & Materials to take over leadership; that Technology and Consumer Discretionary couldn’t do it all by themselves any longer.
Check out the performance of the Sectors since the June 28th low of 2692 on the S&P 500 through today:
Industrials +7.3%
Financials +6.9%
Health Care +6.9%
Technology +4.8%
S&P 500 +4.6%
Materials +3.9%
Staples +3.9%
Discretionary +3.6%
Energy +2.3%
Telecom +1.8%
Utilities +1.6%
Real-Estate +0.2%
This leadership is exactly what we outlined we needed to see to help march the market to new All Time Highs. Today’s action appears to be the beginning of a standard pullback and digestion after this nice run since June. We continue to keep our eyes on those stated important areas. As long as these sectors continue to act well and hold their respective support areas, this potential weakness into early August will just be a pause that refreshes. If something more sinister is setting up, we should see it in these areas first and will act accordingly.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike Harris
