Momentum Monday – Can the Summer Bounce Continue?

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The week after the 4th of July is seasonally strong for stocks. This year was not any different. All major stock indexes gained ground. The Nasdaq 100 rallied to its 50-day moving average. The worst-hit groups in the past year and a half went up the most – biotech, cloud, software, and recent IPOs.

What’s more interesting about last week’s price action is that the strength in so many high P/E and high P/S companies came in the face of rising interest rates. Rising interest rates have been a tailwind for oil & gas stocks and a headwind for tech in the most recent past. The next week or two will tell us if the correlations have changed as Treasuries have been a leading indicator. 

There are not many stocks trading near their 52-week highs. Two main groups are standing out so far – biotech like HALO, HRMY, CORT, UTHR, VRTX, VIVO and defensive stocks like pharmaceuticals LLY, MRK; health care plans like HUM, CI; consumer staples like GIS, DG, DLTR. Most of the latter are low-growth, slow movers. There are only a handful of high-growth names that are setting up – SWAV, LNTH, CELH, FNKO. The solar industry certainly stood out as a group last week with notable breakouts in ENPH, SEDG, JKS, DQ. 

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