The most recent economic news has been good. Last Thursday, the highest Philly Fed report in 7 years pointed to a substantial improvement in manufacturing conditions, and today a strong consumer confidence report reflects the consumers’ belief in an improving economy. But those are lagging indicators, and today they were trumped by the political turmoil in the Middle East, which has been vividly portrayed on television and social media. As a result, the market sold off strongly today, with the S&P 500 closing at 1315.44, down a full 2%.
The rolling revolution in the Middle East has expanded to Libya, Yemen, Bahrain and Algeria, where citizens are uniting to overthrow malevolent leaders. These countries contain the highest percentage of repressed 20 to 30-year-olds who seem to be willing to give their lives in their quest for freedom. This may well mean that Mubarak’s fall will only be the beginning of violent unrest across the entire area. In Libya, brutal responses from police and mercenaries have exacerbated the situation to the point where Kaddafi has threatened to stay on in martyrdom and do whatever it takes to restore his power. The situation appears very grim.
On a global economic front, the unrest threatens the world’s major source of the oil production. And not only production, but transportation of crude oil as well, as even the Suez Canal is threatened. Oil prices are up sharply, more than $5 a barrel this morning; crude oil is now as high as $105 a barrel in parts of Europe. Obviously, airlines are down dramatically, today but the entire marketplace, in a very broad decline.
Not only is political unrest trumping improved economic numbers, it is curtailing the flow of money back to equities. Right now, gold and other precious metals, as well as crude oil itself, are the recipients of new inflows of cash.
Market Stats. Among cap/styles, Small-cap Value was strongest last week, up +1.7%, with all small caps faring better than everything else. The worst performers were Mid-cap Growth and Large-cap Growth, both up less than +1%.
All sectors were up last week, led by Energy (+3.75%), assisted by Conoco Phillips (NYSE:COP) raising its quarterly dividend 20%. Health Care came in second at +1.95, and the laggard, Technology, eked out a +0.62% gain. As expected, Consumer Durables dropped from its lofty #1 position the week before to #4 last week, as the Sabrient SectorCast had predicted.
But that was last week. Today, all sectors are down, with Utilities and Consumer Non-Durables down the least, as you might expect. Energy and Health Care are right behind the two leaders, with Transportation getting killed at the bottom. No surprise there.
Our forward-looking SectorCast is predicting Basic Industries, Technology and finance as the top three sectors, with Transportation and the three Consumer sectors at the bottom.
What’s Ahead. Until today, this market has resisted bad news from just about every possible source, but today the S&P 500 broke through its 20-day moving average for the first time since December 1. And the Nasdaq closed at 2756, down almost 3%–and that’s after hitting a new 3-year high of 2833 last week, which was only 26 points from its 2007 high of 2859!
Clearly, the market is fearful. The VIX is up 25% today, and the long-term VIX is up 13%, reflecting the significant increase in fear within the market. I think it is unlikely that the market will settle down until there is some prognosis positive about the outcome in the Middle East.
4 Stock Ideas for This Market
This week, I started with the GARP (Growth At a Reasonable Price) preset search in MyStockFinder (http://MyStockFinder.com). I then up-weighted Technicals and Insider Buying. Here are four stock ideas worth considering. Each of them showed relative strength today on a very weak market day.
Fuwei Films (FFHL) – Basic Industries
Universal Insurance Holdings (UVE) – Finance
Tyson Foods (TSN) – Consumer Non-Durables
Humana (HUM) – Healthcare