Thursday, July 16, 2015

The pattern continues for U.S. equities

June 9th was the last comment here on the U.S. equity market.  At the time, CNBC was obsessing over the "summer swoon", pundits, seeking attention and just guessing, piled on, and the market was leaking slowly every day.  That continued for a few weeks and on June 30 the Fidelity S&P Index fund that is used here was allocated more funds.  Through yesterday, that new allocation is up 5.5% in the last two weeks.  Who knows what will happen next.  The final sentence of the June 9th commentary had been "if it(the market) snaps back, the pattern of recent years continues".

Now the S&P is approaching its high for year and the Nasdaq is on a roll today.  Generally speaking, financials with any decent performance, especially the bigger banks, are having a good run. Prospects for a more positive yield curve are a big part of that.  Continued solid credit performance is also important.  The potential for falling legal costs and a decline in the random and harshly punitive government penalties for activities that took place over six years ago is also a positive.  Cynics may say that politicians are easing up because the financial firms, like all big firms in any industry, are big contributors to campaigns.  Some realists may note there are a very large number of people in this country who work for financial firms, and they tend for the most part to be educated voters.

Small caps have been experiencing a mixed performance from day to day, but they are, in general, holding their own.  In that part of the market, some companies that have had large gains over the past several years have been a source of liquidity for new ideas, leading to declines unrelated to current performance.  There continue to be opportunities for stock selection, and one big miss here a few months ago still rankles.  Mistakes are sometimes difficult to shake off.

Transports seem to have stabilized but energy related stocks have not.  Technology and biotech still have their standouts, different almost every day.  See Netflix and Celgene in recent days.

As for international concerns, the deal in Greece is no answer but the financial markets seemed to just want a break from the complete uncertainty, and that is certainly all that this agreement is.  It will also provide some liquidity in Greece short term that will allow the country to function and it's hard to complain about that. The angst over China among seasoned investors does not seem to have spread to the broader market but how that evolves is uncertain as discussed in a July 9th post here.  It appears to be a longer term issue.  The tension between Russia and Western allies in Eastern Europe seems to be on hold for the moment and how to read that is unclear. The Iran deal is another placeholder that the markets seem to view as much much better than nothing.

There are many moving parts, but none are rattling the market today.  

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