Courtesy of David Brown, Chief Market Strategist, Sabrient
The S&P 500 closed today at 1309, down well over 1%. The NASDAQ closed down nearly 2%. In light of relative valuations and current global prospects for the past six months, the question begs an answer: Why? Let’s begin with an overview of the results of the past week.
Last week lacked catastrophically bad news. China lowered its prime interest rate to combat its slowing growth. The world continued to wait for a solution to Europe’s worst problems, currently formulated (but don’t hold your breath) as a proposed infusion of $125 billion into Spain’s banking system, which if consummated, should stabilize Spain and leave the Greek election on June 17 as the worst potential problem on the European front for now. Other than a very poor Factory Orders report last Monday, the remaining domestic economic reports were slightly below expectations but nothing particularly troubling.
The lowering of China’s prime interest rate, the European positive rumors, and no really bad economic new domestically resulted in a robust market that gained from 3 to 4%, depending on your favorite index.
Market Stats. Especially bullish among style/caps was Small-cap Growth, leading the way with a 4.74% gain for the week. Even the worst style/cap Mid-cap All, was strong at +3.50%. Due to the European rumors, Financials was the leading sector up a strong 4.91%; while it gained about 20% since its October 2011 low, it’s still 15% below its early 2011 high and less than 50% below its 2007 high.
Other strong sectors included Technology, Cyclical Consumer, and Basic Materials. Telecom, one of last week’s leaders was the worst, but with a gain of 2.6%. All in all, the market’s performance was quite bullish with the S&P 500 closing at 1326, well above its 1260 support level. For scorekeepers, that is about 100 points below the high in early April.
Despite a new economic report showing a continued slowdown in retail sales, the Asian markets reacted favorably to the infusion for Spain yesterday. The Nikkei closed up 2%, and the mainland Shanghai Composite closed up more than 1%.
The European bourses opened, as expected, in very strong fashion. Oil prices advanced, as did gold. But amidst the euphoria, questions began to arise about exactly what the Spanish request really meant with regard to Europe as a whole. …
