09 Jun Tug of War in the US Stock Market
Today was an interesting day in the US market. I thought I would note a few observations.
Do we have the start of a correction or a broader market advance? The US market has been supported by technology sector stocks (a handful such as “FANG” Facebook, Apple, Netflix and Google) but they turned down abruptly today. Some of the money that was in technology shares flowed mostly to financial sector stocks but also to healthcare sector stocks which are generally considered more defensive. Financial sector stocks have been lagging but they are perking up.
We have been watching the US small company stock indicators (see the advance/decline chart below -hat tip to Bob Karrow) for clues to attempt to decipher what is next for the US markets. Small company stocks have lagged large company stocks (e.g. S&P 500) for much of this year. Small company stocks can be an indicator of market direction, a canary in the coal mind. But wait, are things changing? Perking up in the US small company stock universe? We have seen a recent rally and divergence between small company stocks and larger company technology stocks. This could be a sign of a broader market rally or just another head fake as we have seen multiple times as of late. Technology has been leading for a while so we shall see how this plays out.
There really is no clear direction to the market. It appears it is waiting for more news on tax cuts and health care reform.
This is interesting stuff but we are sticking to our discipline!
“If everyone is thinking alike, then no one is thinking.” – Benjamin Franklin