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Courtesy of David Brown, Chief Market Strategist, Sabrient
Today the S&P 500 Index dropped 32 points and plunged through its major support level as if it wasn’t even there. Support at 1120 has held firm on many occasions in the past two months—the latest being last Friday—but today the Index landed at 1099, which is more than 20 points below its previous support. It’s no comfort that the next solid support is at least 40 points lower.
The drop is clearly related to the lack of progress with the Greece bailout. Despite all the promises we’ve heard, investors still fear the country will be allowed to fail (but I doubt that). Adding to investor worries are the problems with China’s economy. Some positive readings from our own economic reports, which we’ve all been waiting for, failed to soften the landing.
Positive reports included today’s ISM Manufacturing Index (up +1% from last month) and construction spending (1.6% higher than expected and 2.8% higher than the previous month). These on the heels of last week’s happy news from the Chicago PMI, indicating sharp improvement in business conditions in the Chicago area, and the easing of consumer pessimism, as measured by the Reuter’s/University of Michigan Consumer Sentiment Index. Moreover, initial jobless claims dropped sharply last week to 391,000, falling below 400K for the first time in several weeks. Even the third revision of GDP was up, rather than down, albeit only 0.1% more than expected.
Under other conditions, these numbers might have buoyed the market, but not today. So much for timing.
Market Stats. Last week, the S&P 500 Index ended the week just about where it began, but the flight-to-safety gave Large-cap Value almost a +1% gain. Anything to do with growth or small caps was negative, although the numbers weren’t nearly as bad as the week before.
Financials led the sector performance last week, rising from the ashes for a +1.5% gain. (The sector gave it all back today, along with another 3%, falling -4.5%.) The traditional flight-to-safety sectors, Health Care and Public Utilities, were both up around +1%, while Basic Industries, Consumer Services, and Technology were all down -2% or more.
Until the European situation is settled, we will continue to cast a skeptical eye on our forward-looking SectorCast. Basic Industries is…
