Daily Market Recap

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Buyers stepped in the markets over the last few days as they reluctantly jumped back into stocks. The S&P 1542 support mentioned last week held on Friday, dipping below it briefly before commencing the recent rally towards 1593 today. Much of that move was predicated on cyclicals; however, that seems to be petering out now as consumer discretionary stocks led the market in the morning.

It was health care stocks that pitched the winning close for the U.S. stock market, with the XLV up 0.96 percent. The real excitement will probably come from the financials tomorrow as we get to hear from Wells Fargo and JPMorgan Chase early in the morning after disappointing in the 4th quarter of 2012.

Many investors were expecting a decent sized decline after last week’s economic reports. Many market internal indicators were signaling weakness. Despite the economic weakness last week, don’t forget about the rather large Bank of Japan announcement. Ever since the Japanese announced their plan to target the money supply aggressively, it’s as if the carry trade was being restored with cyclicals up big, and a search for dividend yield commenced. Even the technology stocks had a good run on ADTN’s results yesterday, but it was for naught on Thursday when IDC announced first quarter shipments that were far worse than the forecasted decline. IDC expected to see a decline of 7.7% in PC shipments but they saw 13.9% instead - even despite new models displaying Windows 8. As such, MSFT, INTC, HPQ, and IBM took a bite out of the Dow Industrials. The technology sector ETF, XLK, was down 0.26 percent. The IDC report continues to reassert why the technology sector continues to underperform the broad market, warranting an underweight positions in investors’ portfolios, mainly as a result of large-cap tech.

Healthcare turned heads towards the end of the day as biotechs (CELG and BIIB) and drug stores (as a result of Rite Aid’s guidance and EPS) took the performance lead on the day. Drug Stores are considered consumer staples, but they are in the drug store industry group and tie very closely to the health care sector. In addition to biotechs and pharmaceuticals, HMOs continued to trade higher after consolidating from last week’s Medicare Advantage rate change. Some of the new 52-week highs in the health care sector included Pfizer, GlaxoSmithKline, Allergan, Novartis, Sanofi Aventis, and Lilly.

Retail stocks were leading in the morning with Bed Bath & Beyond up despite slightly disappointing results, but that gave way as investors got back to fundamentals for the company, closing down 2.29 percent. It was a fairly whacky day in retail stocks. Despite Thomson Reuters posting 1.8 percent growth in same-store sales, the lowest since 2009, many retail stocks were up big today. TJX Companies finished the day up 2.44% despite a 2% drop in same-store sales when a 1% decline was expected. Fred’s was another odd close today, up 1.53% after posting a 3% drop in same-store sales when a 1.7% decline was expected. Easter, typically slow for retailers, was shifted to March this year when it fell in April last year and might have explained some of the weakness in March and possibly a better projection for April ahead. In addition, weather was unusually cold in March and is expected to warm up in April. Zumiez and Ross Stores topped analyst expectations and were thusly rewarded, up 13.45% and 5.92% respectively.

The S&P 500 has closed up four days in a row. The daily, weekly, and monthly trends remain in extended territory and have not signaled a sell signal. Despite weakness, the general consensus is that it’s too late to buy, and too soon to sell as many stocks that have been working (like health care, consumer staples, wireless, utilities, financials, and homebuilders) continue to work. It is unclear if these groups can continue their performance run, but if they do the cyclicals will need to take their place if the market is going to consolidate or rise. The reinvigorated yen carry trade may make that possible, but as in all forms of inflation, there are no walls to contain where it goes. Money follows money and will continue to chase yield in a low interest rate environment. Stocks yielding 3-4% still look appetizing for retired investors.

Peering into next week, the earnings season will kick off in earnest and we’ll also get some key economic data from China. Expect sector performance to continue to be volatile as we stretch into the earnings season with many bellwether companies to report next week.

Source: PFS Group

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