Picks of the Day June 15,2017

Kiss of Death for the Tech Sector?

A decline in tech stocks dragged down the NASDAQ and the S&P 500 which both ended in the red on the heels of investors’ concern about the economic growth pace in the face of yesterday’s weaker than expected inflation numbers and a quarter point rate hike.

As expected, the Federal Reserve hiked rates by a quarter of a percentage point, though the market wasn’t particularly moved by the policy statements accompanying the hike announcement. Despite a number of positive economic comments from the Fed, which managed to offset yesterday’s weak economic readings, the central bank didn’t come across as positive about economic growth as it had in the past. To complicate things even more, the Fed addressed the steps it needs to take to lower its $4.5 trillion balance sheet, bloated by its quantitative easing initiative which began in 2008.

Stocks began to find solid ground again in the last trading hour, something typical to say the least on “Fed Days.” The question, though, is whether the market feels that there’s justification in yesterday’s news for a larger sell-off. The seasonality works to the advantage of the bears and the topic of lowering the Fed balance sheet has caused problems in the past. At the same time, the bulls are drenched with hope and have seemed to shunt aside the prospect of any downside potential.

One interesting insight into yesterday’s movement was the momentum stock grouping known as FAANG; they lagged by large measure behind the market as a whole. FAANG missed a beat and couldn’t entice buyers after the Fed announcement, though did bounce back a little leading up to the closing bell. The kiss of death for tech stocks will be negative growth or a slowdown in the software and hardware market. That’s the reason the sector pulled back again yesterday, against the backdrop of concern that Fed activity will spur a slowdown in economic growth and thereby, overshadow tech companies’ potential earnings growth. The tech sector (XLK) ended off 0.48%.

Even if the market wasn’t weighed down heavily yesterday by the prospect of a Fed move, we have to wonder what could be the next positive catalyst for the market. Stocks do not need positive news to continue to rally, but momentum stocks took the brunt of the latest hit, leaving us to speculate what the direction will be in the slow summer months which are typically devoid of large newsworthy events.

In Summary for the Day: The Dow Jones rose 0.22%, the S&P 500 shedding 0.10% and the NASDAQ falling 0.41%.

Earlier yesterday, the economic figures showed the Consumer Price Index (CPI) falling surprisingly in May, retail chain sales recording their sharpest fall in 16-months’ time.

The energy sector (XLE) was particularly weak, plunging 1.8% after crude took a very large hit after inventory figures, released earlier in the day, showed a smaller than expected decline. Crude ended sharply down by close to 4%.

One of the stocks that stood out in yesterday’s trading was the biotech firm, ALXN, which soared 9.3%, making it the biggest winner on the S&P 500, after announcing that it had swiped Biogen’s CFO for itself. Biogen (BIIB) fell 3.1% in response.

HRB soared 7.9% after the tax preparation company reported results that outstripped analyst forecasts.

About 7.1 billion shares changed hands yesterday, significantly above the 6.8 billion average over the last 20 trading days.

Thursday:  The market is likely to give added weight today to the stockpile of figures set to be released after the rate hike, despite disappointing inflation numbers and apprehension about a weaker economic environment than earlier anticipated by the Fed.

Today’s troupe of economic figures will include import and export prices at 8:30 N.Y. time. The Philadelphia Fed survey and the N.Y. Empire State survey will be released at 8:30. Industrial output will be released at 9:15, the contractor confidence index coming out at 10:00.

Investors, of course, will continue to track crude movement, “black gold” closing yesterday beneath the key $45 level.

Thursday’s Hot Stocks: AVXS, JBL, KR

IPOs: ATXI, BOMN

Have a great trading day!

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New York Strategy Swing

Today’s Picks – Swing “New-York Strategy

No.1 –    SBUX