Is Market Derailing, Or Is Train Leaving The Station?

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Posted: May 11, 2018 11:26 AM
Is Market Derailing, Or Is Train Leaving The Station?

I talked about the train pulling out of the station on Thursday. And that the fear pendulum is swinging from worries the market was going to derail to a sense that maybe the train is leaving the station, and now it’s picking up speed.

The composition of the session is also telling: 

The undercurrent during this six-day run has been the search for value, which had investors buying up healthcare and real estate names.

Even technology was strong again, but it wasn’t the usual names powering the sector,  but it was oversold names such as CenturyLink (CTL) and Qualcomm (QCOM), which announced a $10.0 billion share buyback. 

Then there is the mundane:

Material names are up again, led by a major breakout in LyondellBasell (LYB) and hot fertilizer stocks.  Also, United Rentals (URI) continues to come on strong, while uniform maker Cintas (CTAS) continues to surge.

S&P 500 Index

+0.94%

Consumer Discretionary (XLY)

+0.36%

Consumer Staples (XLP)

+0.59%

Energy (XLE)

+0.75%

Financials (XLF)

+0.82%

Health Care (XLV)

+1.34%

Industrials (XLI)

+0.68%

Materials (XLB)

+0.72%

Real Estate (XLRE)

+0.92%

Technology (XLK)

+1.30%

Utilities (XLU)

+1.41%

 

Indifference

My concern is the amount of individual investor apathy that persists. In the first week of the year, individual investor bullishness was at 60%, and it has been in a steady decline since. However, investors aren’t becoming bearish; instead, there’s a great sense of indifference. 

What’s worrisome is that so many of these same folks are excited about the country; they see signs of the economy coming back, but have been too intimidated, or have been burned so much to care about riding that same wave of economic revival rather than simply cheering it from the sidelines.

Speaking of trains leaving the station, estimates for the current quarter’s Gross Domestic Product (GDP) are edging higher and higher. The Atlanta Fed is now modeling for a 4.0% growth this quarter. I know they have a spotty record, but I feel really confident we are going to zoom past 3.0%.

30-Apr

Initial nowcast

4.1

1-May

ISM Manuf., Construction spending

4.1

2-May

Light vehicle sales

3.9

3-May

Foreign trade, ISM Non-Manuf. Index, M3 Manufacturing

4

4-May

Employment situation

3.9

9-May

PPI, Wholesale trade

4

 

To that end, don’t look now, but the Russell 2000 Index could make a new all-time high today. This is big news because the index badly trailed other broad equity indices last year, but right now, it’s the second-best performer in 2018.  The index is considered the best proxy for the domestic economy.

  • NASDAQ Composite: +7.3%
  • Russell 2000: +4.4%
  • S&P 500: +1.9%
  • Dow Jones Industrial Average: +0.1%

Remember to invest for the long-term; when you are most intimidated, that might be a good time to add to positions or get started.

Today’s Session

The markets are mixed this morning, with the Dow and S&P 500 up, and the Nasdaq down slightly.  If the Dow end’s in the green, it would be the 7th consecutive up day.

This morning we got the latest on import export prices.  U.S. import prices for April increased 0.3% compared to a 0.2% decrease in March.  U.S. export prices rose 0.6% in April compared to 0.3% in March.  We will have more on this on the Afternoon note.