Are We in for a Resurgence of Volatility?
The latest stock market highs signal that the market is right in its stride. The bond market, though, seems to be signaling just the opposite, i.e. that the market is about to go right off the cliff! That notwithstanding, all of the main indexes ended last week at all-time highs, the S&P 500 ending up 1%.
Of late, traders have been having a hard time making up their mind which side is on the money, the stock market which has soared to new highs on an almost weekly basis – or the bond market, whose yields are trading at an historical low. Stocks have been trading up on the heels of solid earnings reports, and hopes for a stimulus program from Washington, but bond yields, which are traded inversely to their prices, are at a historic low against the backdrop of concern about the paltry inflation rate and an economy that’s been faltering, something that could be the economy’s Achilles heel if the Fed hikes rates too quickly.
Tech stocks led Wall Street last week to new historic highs and some investors believe that tech stocks have more room to rally, but in so far as the most recent rally has swept large tech stocks higher, some investors are beginning to try to identify the next group of stocks outside of the tech sector that have rally potential.
The tech sector is up 20% on the year, led higher by Apple (AAPL), Microsoft (MSFT), Google (GOOGL) and Facebook (FB). The only stock that has performed this year at the same level has been Amazon (AMZN), an investor favorite, which, despite its cloud and data storage services, is still considered a tech stock.
Over one third of the gains on the S&P 500 this year have come from the 5 above-mentioned companies. If you talk about horse power, these 5 have literally been on fire, tacking on over $612 billion in value to the S&P 500 this year. Their 2017 gains alone are enough to buy up the 85 smallest stocks on the S&P 500, the market cap of these 5 powerhouses now coming in at $3 trillion, not far off from the market cap of all of the rest of the stocks on the NASDAQ 100.
The tech sector rally has gone hand in hand with high hopes for firms’ future profitability. Stocks are now paying $18.50 for every $1 of anticipated future earnings power in the next 12 months, compared to the $40 plus they were willing to pay at the height of the dot-com bubble; and the $20 plus they were willing to pay at the time of the last stock market high in 2007.
The sector’s earnings are expected to grow by 11% in Q2, after having risen almost 21% in Q1. At the same time, gains of over 33% in the stocks of Apple, Facebook and Amazon, coupled with gains of almost 25% in Google, as well as 15% in Microsoft starkly overshadow the gains of just 8.5% on the S&P 500 this year, meaning that the upside for these 5 market kingpins is increasingly on the wane.
This coming week, the market will focus on a number of events that could as a whole, present an opportunity for volatility’s resurgence. All of these economic events will be playing out on Thursday.
The former head of the FBI, James Comey, is expected to testify before the Senate Intelligence Committee on Thursday at 10:00 N.Y. time, investors eagerly waiting to hear whether he will make any mention of Donald Trump having tried to end the intelligence agency’s investigation into former National Security Adviser, Michael Flynn.
And then, there’s the European Central Bank (ECB) meeting, which, based on speculations that have been making the rounds, will lead to the termination of the continental quantitative easing initiative. Also on the roster, be primed this week for the early elections called by the incumbent British PM, Theresa May, in the hope of acquiring a larger Brexit mandate.
The concern encircling European elections and the growing uproar on Capitol Hill are two risk factors that could put a spoke in the wheel of the 2017 rally. Both come to a fore this coming week!
Weekly Summary: The Dow Jones rose 0.63%, the S&P 500 rising 1%, and the NASDAQ lifting off 1.77%.
Have a great trading week!
|Tuesday||10:00||JOLTS – Job Openings||–||Medium|
|Wednesday||10:30||Crude Oil Inventories||Low|
|CASY||Casey’s General Stores, Inc.||PM||Monday|
|THO||Thor Industries, Inc.||PM||Monday|
|PLAY||Dave & Buster’s Entertainment, Inc.||PM||Tuesday|
|UNFI||United Natural Foods, Inc.||PM||Tuesday|
|NAV||Navistar International Corporation||AM||Thursday|
|DVMT||Dell Technologies Inc.||AM||Thursday|
|SJM||The J. M. Smucker Company||PM||Thursday|
Today’s Picks – Day Trading!
New York Strategy Swing
Today’s Picks – Swing “New-York Strategy
No.1 – RL
|Sector||Consumer Goods | Textile – Apparel Clothing|