A Flight to Risk . . .
By David Brown, Chief Market Strategist, Sabrient Systems
Today’s market confounded me about as much as last week’s flight to risk. Today, in the face of disappointing economic news on personal income and spending, the Dow and the S&P 500 gained almost 1% while the Nasdaq gained 1.3%.
No doubt today’s optimism was spurred by the European Union’s proposed bailout of Greece and the White House’s announcement of a possible “significant” deal on the national debt, along with a carry-over glow from President Obama’s gift of oil reserves last week. But the Greek bailout is not a done deal; our stubborn Congress has yet to approve any solution on the national debt; and tapping oil reserves to lower gas prices is a temporary measure at best.
But hey! Any sliver of good news is fuel for the market in its current mood.
Last week’s market behavior, though, was truly confounding. All three major indices rose on Monday and rose again, big-time, on Tuesday. Then they settled down to mostly small losses as disappointment hit on Wednesday when Chairman Bernanke delivered an inconsequential speech after setting everyone up for a “major” (and unusual) press conference. That was followed by more disappointment on the employment front with the rise of initial jobless claims to 429,000 from last month’s 420,000.
The only decent economic news came on Friday with the durable goods report (up +1.9% against a consensus estimate of +1.5% and last month’s -2.7%). Yet the week ended on a positive note for most of the indices. The biggest gains were made by the Nasdaq and the Russell 2000, as investors loaded up on small-caps and concentrated on growth stocks in all three caps.
Small caps and growth stocks have inherently higher risk than value stocks and larger caps. Thus, the “flight to risk.”
Market stats. The cap/style table clearly shows last week’s dominance by growth and small-caps. Small-cap growth led by a healthy margin (+3%), with small caps in general the second best cap/style (+2.2%). But even in the larger caps, growth dominated the styles. Mid-cap Growth was up +1.6% and Large-cap Growth, +0.4%.
The flight to risk was obvious in the sectors as well. Consumer Durables…
