Minyanville's T3 Morning Market Call: Sector Rotation Continues to Fuel Macro Uptrend
(INDEXSP:.INX) futures are up about six handles this morning as the
bounce looks set to continue. Last week we got some erratic,
somewhat bearish action, but we have erased most of those gains
this week as some beaten down sectors have helped lead the
recovery. Homebuilders (NYSEARCA:XHB) have seen some impressive
snapbacks after they seemed to be headed back down following weak
existing home sales data Monday morning. Financials (NYSEARCA:XLF)
have resumed somewhat of a leadership role again, with
) emerging as perhaps the leader in the sector this quarter
following strong earnings.
With the S&P still hanging near all-time highs, it is difficult, in my opinion, to confidently pile into broad index funds, but rather with earnings season in full force there are plenty of stock-specific opportunities.
Sector rotation has been the key to the macro uptrend in this market, and now we are seeing some money rotate into mega cap tech names. Microsoft ( MSFT ) exploded higher a couple weeks ago out of a lower level base, but weak PC sales data and a big downgrade from Goldman Sachs ( GS ) erased all of those gains. However, after basing back near the previous breakout level, MSFT has re-emerged and yesterday finished with very impressive gains. With many value-staple stocks starting to look extended, perhaps investors are drawn to MSFT's dividend yield combined with growth potential, if it can ever become an innovator again. Intel ( INTC ) has seen similar type price action as MSFT surrounding that Goldman downgrade of the sector. Yahoo ( YHOO ) sold off on earnings, but held the 50-day moving average and is back at 52-week highs.
Money rotated out of some biotech names yesterday following weak earnings from Amgen (AMGN). The sector had been red-hot this year, and it will be interesting to see whether the weak AMGN report triggers a larger correction in the group or whether weakness is contained. Both Celgene (CELG) and Biogen (BIIB) reported earnings that topped estimates this morning, with BIIB's report looking particularly impressive. The stock is up around 4% this morning on light volume.
Apple (AAPL) will continue to get a lot of attention after its polarizing earnings report Tuesday. The company did placate angry shareholders by announcing a hefty buy-back program and increasing its dividend by 15%, but it wasn't a bold enough capital plan to really excite value investors. Growth investors, meanwhile, are heading for the exits due to continued margin compression and very weak guidance. To trigger a big move in the stock, Apple may need to launch new product lines, but I don't believe the stock will get much lower than $400.
Defensive value stocks have performed best this year as investors still prefer less volatile, safer names amid uncertain economic times, but those weakened yesterday, like the biotechs, because of weak earnings from one of the sector leaders. Procter & Gamble (PG) disappointed analysts with its quarterly report and the stock traded down almost 6%. Many other value names traded lower in sympathy, and it will be interesting to see if they present buying opportunities. I think if you do get any more downside in PG, it could be a great buying opportunity.