Except for the positive reaction to last Wednesday’s FOMC announcement, the markets have been stuck in the mud now for two weeks. Last Friday was about as slow as you can get being the first weekend of the NCAA Men’s Basketball Tournament overlapped with St. Patrick’s Day. There was nothing to really say or do in the markets for those two weeks. Then out of nowhere, the financial sector took it on the chin yesterday and dragged the broader markets lower. It was the worst session for the equity markets since last October.
Let’s examine what is going on a in greater detail. Industry leader, JP Morgan Chase (JPM) declined about 3% on Tuesday and now stands 6.63% off its high hit on March 1. Despite these recent moves, JPM has still rallied nearly 25% since the 2016 election. Let’s compare those moves to that of the Standard & Poor’s 500 (SPX). The SPX is off just over 2% since hitting an all-time high on March 1 but stands about 9.5% above its closing price the day of the election.
This begs several questions:
- Are the financial stocks headed lower? Rising interest rates and an expanding economy, are positive fundamental signs for banks. Technically, there has been damage to the sector. I can easily see another 2% decline on average for financials. By another measure, the sector is washed out and could find its footing here.
- Have the overall markets topped out? Serial Top Callers will tell you so. After a huge move since the election and a solid beginning to the year, the SPX was due for a pullback. I could see this current pullback extending a bit more, lasting perhaps till the heart of earnings season. Beyond that, in the absence of any major unexpected news, I am maintaining my price target of 2,600 for the SPX this year.
- Did Tuesday’s move constitute a “One Day Blunder”? It certainly had the feel of one. The volume on the NYSE was about average, although stock volume is not the same barometer that it used to be given the proliferation of exchange traded funds. We won’t know this answer until tomorrow’s session closes.
- In there a sector rotation taking place? That is quite possible. Besides financials; transportation stocks have also taken it on the chin since March 1. On a relative basis, healthcare stocks performed much better since March 1 and yesterday.
Given those four questions, (I know, Passover is coming soon) I am most certain that #4 is playing out before our eyes. So, while I have reduced our exposure to financials and transportation stocks last week and yesterday, I am going to add to healthcare today. Specifically, I will buy more shares in Stryker (SYK) today. SYK manufactures specialty medical and surgical products. I am also taking a serious look at AbbVie for our Growth Portfolios. We already hold ABBV in our Dividend Value Portfolios. In the process of these portfolio changes, on a net basis, I am building up cash, just in case the pullback in #2 plays our further.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long SYK & ABBV— although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant, beverage and agricultural stocks. An individual subscription to the newsletter can be ordered at www.restaurantstox.com Furthermore; Scott is also a professor at the Seton Hall Stillman School of Business in South Orange, NJ.
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