Despite Monday’s sell-off, the forward outlook is slightly better than it was last week. Friday’s positive day on weak volume bailed out last week’s poor showing. Things couldn’t have looked much worse after the heavy sell-off on Wednesday, the worst market performance in three months. Gloom from Europe, gloom from the stalemate in our Congress, and gloom from the prospect of falling back into the S&P 500’s abysmal trading range of 1120 to 1220 weighed on investors.
But Italy’s positive bond auction, following its Prime Minister’s resignation, started to improve the tone. This was aided by a better-than-expected initial jobless claims figure here in the States and by improved trade deficits and treasury budget readings Thursday. A surprise boost in Michigan Consumer Sentiment Index got the market really moving towards its strong close Friday, albeit on light volume.
Market Stats. The week’s positive conclusion was led by flight-to-safety style Large-Cap Value, up 1.03%, while lagging behind was its antithesis, Small-Cap Growth, down 0.74%. Classic flight-to-safety sectors Consumer Non-Cyclical (+1.5), Healthcare (+1.3%) and Telecommunications (1.2%) led the way. Financials continued to take the brunt of market angst, down -0.87% last week and Monday, losing yet another -1.84%.
It’s true Monday’s giveback probably corrects some of Friday's low volume run-up, but the market closed on a strong note yesterday as the GOP emphasized that Congress will meet its debt deadline with a deal. The new Prime Ministers in Greece and Italy have improved the euro outlook but by no means resolved the crisis.
The dollar strength yesterday didn’t help the domestic market, nor did a poor showing in European bourses. But there is little doubt that we have moved back from the brink. Regardless of the difficult problems ahead, we are still better off than we were last Wednesday, with improved leadership both here and abroad, abundant corporate cash, and well-priced companies.
Looking Forward. Caution is still urged, and bargain hunting is the desired style especially after last week’s flight-to-safety. The VXX (iPath S&P 500 VIX Short-Term Futures ETN) remains an effective hedge, as it performed strongly last Wednesday (+18.8 gain) and again today, gaining nearly 2.5%.
4 Stock Ideas for this Market
This week, I used the GARP (growth at a reasonable price) preset search in MyStockFinder. I also included Buys. Here are four stock ideas that look intriguing:
CACI International Inc. (CACI) – Technology
Group 1 Automotive, Inc. (GPI) – Cyclical Consumer Goods & Services
Community Health Systems, Inc. (CYH) – Healthcare
Caterpillar Inc. (CAT) – Industrials