The first half of 2017 has generally been led by technology and growth stocks, but for the past few weeks market leadership has been in flux. Specifically, during the month of June growth and technology stocks have become increasingly volatile, a sign that a growing number of investors are more concerned with short term losses versus longer term gains. What we may be witnessing is a change in market leadership, an event that can be good for the stock market as long as the market laggards can keep from being a drag on the broad market averages and hold on to their gains.
One example of potential new market leadership is in health care stocks. With the senate attempting to pass a health care bill this week, some investors appear to be trying to get ahead of the vote by reallocating a portion of their funds to the health care sector. This has elevated the S&P 500 Health Care index by 2.38 percent over the past five trading days, while leaving the S&P 500 Technology sector nearly flat, up only 0.01 percent over the same period. Of course, we don’t know how long this new market leadership will last, but if congress can work together and agree upon a health care reform bill, it’s possible that health care stocks could have much further to run.
However, the bigger question surrounding health care reform has more to do with how well congress can work together to help the American people. The success or failure of congress to pass a health care reform bill will send a huge message to investors of the likelihood of tax reform later this year. Tax reform is where the real stimulus is at, but if congress can work together volatility may spread beyond just technology and growth stocks.
Laif Meidell, CMT
We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
MORE HOMES MOVED IN MAY
In a pleasant surprise for economists, both new and existing home sales picked up last month. The National Association of Realtors announced a 1.1% gain for resales, with the average house for sale spending only 27 days on the market. New home buying increased 2.9% in May, resulting in an annualized gain of 8.9%. The average sale price for a new home was $406,400, a record.1
LEADING INDICATORS IMPROVE
The Conference Board’s Leading Economic Index rose 0.3% for May, following gains of 0.2% for April and 0.4% for March. Most of the index’s components were positive for May and a steepening interest rate spread, a climb for the Institute for Supply Management’s new orders index, and greater consumer optimism about business and economic conditions were major factors. The LEI was up 3.5% year-over-year through May.2
CRUDE IS ON ITS LONGEST LOSING STREAK IN 2 YEARS
WTI crude settled at $43.01 at Friday’s closing bell, down 4.4% from the end of last week. This decline marked the fifth straight weekly retreat for oil; an 8-week losing streak ended in August 2015. Oil is now in a bear market.3
All three of the major U.S. equity indices had made 5-day gains by the time trading wrapped up on Friday. The Dow Jones Industrial Average had added just 0.05%, advancing to 21,394.76, and the S&P 500 had improved 0.21% to 2,438.30. In contrast, the Nasdaq Composite rose 1.84% to 6,265.25. Even after this last sideways week, the Dow 30 ended Friday’s session up 1.49% month-over-month.4
On Monday, the Census Bureau shares data on May hard goods orders. Tuesday sees the release of the latest consumer confidence index from the Conference Board, plus earnings reports from Darden Restaurants and KB Home. Wednesday, the NAR puts out its May pending home sales report, and Franklin Covey, General Mills, Monsanto, Paychex, and Pier 1 announce earnings. The third estimate of Q1 GDP appears Thursday along with a new initial unemployment claims report and earnings announcements from ConAgra Brands, Constellation Brands, Micron Technology, Nike, and Walgreens Boots Alliance. The final June University of Michigan consumer sentiment index, May consumer spending figures, and the May PCE price index arrive on Friday.