The current bull market continues to correct through sector rotation. While money is flowing into financials, semiconductors, energy, and software, healthcare and biotech have been under pressure as of late.
Will Disney+ disrupt Netflix or the new online streaming service is not a big positive for Disney and neutral for Netflix. We will know a lot more about how the market perceives it after Netflix’s earnings on Tuesday.
We also cover athleisure stocks – NKE and LULU are consolidating near all-time highs.
Bull markets often correct through sector rotation. When many leading enterprise software stocks were hit last week, the market averages didn’t skip a beat. The money just rotated into other sectors – semiconductors, energy, financials, retailers, biotech.
The dips are still welcomed as buying opportunities by many. The S&P 500 and the Nasdaq 100 are less than 2% below new all-time highs. The U.S.-China trade deals seems to be priced in. In other words, expectations going into the next earnings season, which starts next week, are high so companies better not disappoint.
The dips continue to get bought for the most part. The major large-cap U.S. stock indexes, QQQ and SPY spend the last couple of weeks in a tight consolidation and are potentially getting ready for another leg higher.
Market breadth is still healthy. We see strength in restaurant stocks like CMG and MCD, fashiology names like LULU, NKE, and AAPL, digital payments, biotech, emerging markets, China, etc.
One of the main warning signs right now is the continued underperformance of small-caps. Russell 2000 is still struggling below its 200-day moving average. The other worry is the coming massive wave of supply via new monstrous-size IPOs like Lyft, Uber, Pinterest, and others.
The yield curve is flat. The 10-year note is currently yielding as much as the one-month treasury. This is the bond market’s way of forecasting a potential recession down the road. Was Friday the day the stock market woke up and started to discount the same? It is too early to say. One down day doesn’t make a trend.
Small caps are looking ominous with that high-volume reversal off their 200-day moving average on Friday. Many tech momentum stocks are quite extended and also vulnerable to quick 5-15% pullbacks.