What the Market Wants: A Puzzling and Irrational Market

Courtesy of David Brown, Sabrient Systems and Gradient Analytics

The weekend’s worries that the Fed may be planning the end or slowdown of QE3 translated into a lackluster market performance with little movement in any of the major indices.

There was evidence of flight-to-safety as Healthcare, led by strength within Biotech’s, gained 1.7%. The only other positive sectors were Utilities and Non-Cyclicals. Today’s positive Retail Sales economic reading, up 0.1% contrasted to last month’s -0.5% and an expected -0.3%, had little effect on the market. Whether or not this small setback will halt the robust gain by the S&P 500 of nearly 6% over the past month with more than 8% by the NASDAQ probably depends more on the plethora of economic releases ahead this week. Price data across the board will give us the current picture on inflation, if any, tomorrow. On Wednesday, we will get a much more important looks at Industrial Production, Empire Manufacturing and Capacity Utilization. Thursday will tell us if last week’s improvement in Initial Jobless Claims holds up, along with CPI and in-depth housing data. That will be followed on Friday with Leading Indicators and the Michigan Consumer Sentiment. If the majority of these releases are positive and if common sense tells us that, of course, the Fed would be making its plans to phase out of the stimulus programs someday and somehow, then the last month’s equity rally will likely continue as money flows from money markets and fixed income into equities.

Last week was very different than today. Other than Friday, when the Fed rumors began to percolate, the market made solid daily gains led by growth stocks and especially small- and mid-cap growth stocks. Small-cap Growth led the way up 2.4%, while even the lagging Large-cap Growth gained 1.34% in last place. Growth sectors Consumer Cyclicals, Industrials and Technology were all up 1.75% or better on a weighted basis with Utilities falling 1.78% as the only losing sector.

Our forward-looking Sabrient SectorCast is still a bit cautious, led by Financials, Cyclicals and Healthcare. Technology remains suspect at the bottom of that 30-day future look, but Utilities are just a tad better. It is very likely it is the predicted PC “fall from grace” that is triggering that outlook. We recommend continued positions in growth at a reasonable price.

Here are the Market Stats.

3 Stock Ideas for this Market

I selected the following stocks from a GARP preset search in MyStockFinder with a focus on the Consumer Cylicals Sector:

Western Alliance Bancorp (WAL) – Financials