Back and forth, back and forth...where it stops nobody knows.... Well, it's something like that as the market drifted throughout the week, buffeted by mixed economic news, global news and corporate news.
The housing industry got nothing but bad news, continuing this morning (Tuesday) with a terrible Case Schiller Home Price report (down more than 2% for the month and nearly 20% year-over-year). Labor news continued to be poor. Global news included the S&P downgrade of the UK sovereign debt rating (no small matter). On the positive side the LEI (Leading Economic Index) surprised positively on Thursday and today the Consumer Confidence Index hit a new 6-month high, well ahead of its expected level. Corporate earnings last week were generally positive, especially the retail sector. So, not surprisingly, the market sloshed back and forth trying to get direction from the mixed news.
At Friday's close, the market was up a tad for the week, led by mid caps (up 1.4%) with only small cap value in the red and then only marginally. The 1-mo, 3-mo and even 6-mo numbers are all now solidly in the black. It is worthwhile to note that mid-cap stocks have consistently led the market recovery which began in December. Small cap growth stocks are close behind, while large cap values lag the style caps - mainly due to the poor relative performance of the large banks.
The sectors were led by strong performances from Materials and Energy up 6.8% and 4% respectively. Healthcare and Utilities trailed, up less than 1%. Metal & Mining led the Industry Groups followed by Paper and Forest Products (reflecting growing confidence in economic recovery on a global scale) while year-long laggards Household Durables and Consumer Finance were last again with more than 3% losses on the week.
We are looking into a very murky crystal ball as we try to peer into the short term market future. Our Sabrient forward sector rankings (see table) still place Utilities at the top due to very attractive valuations and continued historically low interest rates. But long term rates cannot remain this low due to the historically high government deficits, although the administration will use every tactic available to keep rates low until a recovery is underway. Healthcare continues to rise steadily in its forward scores and now trails only Utilities. Again, historically low valuations drive the good score but uncertainties about healthcare reform cloud that picture as well.
Energy and Telecom remain solid choices, while the Financials sector continues to generate lower scores due to what seems to be full valuations in this era of bank earnings uncertainty. Increasing commercial real estate loan defaults and credit card debt problems loom as a reason for lower than full valuations. Technology sector scores have risen enough to merit increased attention as more fully valued Materials companies have swapped places with Technology in the lower end of the sector spectrum.
To be sure there is still a lot of cash on the sidelines and massive short positions that continue to keep the market in equilibrium. So, continue to shop carefully for bargains in mid-cap and small cap growth.
Note: Stocks to consider this week are show below the tables.
Style & Cap Overview
Current Sector Performance
Best and Worst Industries
Forward-Looking Sector Rankings
I ran a MyStockFinder search (http://MyStockFinder.com [1] - a.k.a., QMAXX) using the GARP preset search. Here are some small and mid-cap stock ideas from the top of the list that look intriguing:
Endo Pharmaceuticals (Nasdaq: ENDP [2]) - Healthcare (Pharmaceuticals)
Assured Guaranty (NYSE: AGO [3]) - Financials (Insurance)
FUQI International (Nasdaq: FUQI [4]) - Consumer Discretionary (Jewelry & Silverware)
Harbin Electric (Nasdaq: HRBN [5]) - Industrials (Electrical Equipment)
This is a commentary from the 5/27/09 Trader's Talk newsletter. Click here [6] to receive the newsletter via email. It's absolutely free!
NOTE: Sabrient's Investor's (H)edge Portfolio [7] is available now and absolutely CRUSHING the market! Available only through greenfaucet!