Slightly Lower Prices, Lack of Conviction

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The market was off slightly for the second straight day. Based on the run higher last week it is not surprising to see things cool off. There certainly was far less conviction on the sell side this week than from the buyers last week.

The consumer staples sector of the market was the top performer. Energizer led the way climbing over 10%. Beverages and snack stocks also did well.

The Dow Jones Transportation Average fell 1.1% and trailed the broader market. Weak guidance form FedEx hurt transport stocks. All twenty names in the index were off on the day. Airlines stocks were off across the board. 

The NAHB Housing Market Index for September exceeded expectations. The reading reached a six year high. Bulls point to the increasing strength in housing as a catalyst for sustained strength in the financial markets. Strength in the homebuilding sector spills over into consumer purchases and has a positive domino effect on the entire economy.

Financial stocks, the darlings last week, saw some profit taking today. Based on the strong move last week in insurance, banking, and brokerage stocks, any pullback in this area is likely to be controlled. 

Mining company Rio Tinto spoke overnight about growth prospects in China. They said they anticipated acceleration in Chinese growth by year-end and the head of China’s NDRC said more infrastructure projects could be approved. 

Healthcare stocks again outperformed on the strength of the biotech space. Rumors of increased merger activity in the biotech space pushed that area higher. Larger healthcare names find biotech companies attractive because their higher growth rate can have a positive impact on the larger companies growth rates.

Treasuries were up slightly. They sold off sharply last week as the risk trade was in favor. There was little economic data to drive Treasury performance. They were simply oversold after last week and buying pressure was slightly higher today. 

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About Thomas J Smith CFA