The market pullback didn’t last long. Stocks came back with a fury. The leaders were the usual suspects – biotechs ($IBB) and anything even remotely related to housing – banks ($TCBI, $JPM), homebuilders ($TOL, $LEN, $MHO), home insurance companies ($HCII), mortgage investments ($ASPS, $NSM), REITs ($COR), home improvement stores ($HD), wood production ($PATK), and real estate development ($BRP).
For a third consecutive quarter, bank stocks are rising several weeks before their earnings reports. The market clearly expects earnings beats and you know what, it has been right the past two quarters. Regional banks have been regular visitors on both the 52-week high and the St50 list for almost a year. The big banks are also starting to look technically decent. They are still carrying a ton of unrealized losses from 2008/2009 and naturally the market is giving them much lower multiples for that. Higher uncertainty means lower valuation. This is how things work in financial markets.
There must be a paradise for consumer discretionary stocks out there. Oil continues to struggle despite QE, which is supposed to boost inflation expectations, and despite all the front pagers about the political turmoil in the Middle East. Low interest rates, cheaper fuel, election year, performance envy – good recipe for a bull market.
And yet, the St50 index underperformed, gaining 0.25% on average. In a low correlation market of stocks, there will be winners and losers.
Several momentum names took quite a beating. Shares of the real estate search website Zillow ($Z) dropped to their rising 200dma – which has been a source of support in the recent past. Ditto for $RGR. Security software names $FIRE and $ALLT continue to struggle below their 50dma – their long-term trends are still intact.
Organic food stocks continue to exhibit relative strength and consolidate near major highs. $WFM broke out to new all-time highs. $UNFI is still flagging. $TFM is comfortably appreciating above its rising 50dma. $HAIN is looking the most troublesome in the short-term as it is still trying to consolidate its massive earnings-related gap from August.
3D-printing stocks had major comebacks after a couple weeks of price correction. Both companies are wisely using their stock currency to snatch all promising smaller competitors across the world. This is what Soros means by reflexivity – current expectations change future fundamentals. The dream for future profits brings higher stock prices. Higher stocks prices allow acquisitions of private competitors, which increases market share and gives access to the latest technology innovations in the field. Eventually fundamentals change for the better, which leads to even higher prices. In the stock market, perception is the reality, indeed.
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Have A Great Weekend!