From the desk of Willie Delwiche.
Key Takeaway: US stocks lack momentum while Europe gains strength. Economic recovery moving beyond the US. Bond market not confirming economic & stock market optimism.
The S&P 500 finished last week just three points shy of its highest level on record. Index-level price strength comes with momentum trends rolling over and a domestic breadth backdrop that is not providing confirmation that an upside breakout is imminent. There has been a conspicuous absence of new highs - just last week, the number of stocks making new highs on Friday was below the number making new highs on Tuesday and both of those were well below the early-May peak in new highs. We are also not seeing an expansion in new lows at this point. Rather this muddied and mixed environment is more consistent with a digestive phase than sustained deterioration.
- Cyclical sector leadership (Financials, Materials, Energy) seen at the large-cap level is supported by both the industry group heat map and as well as the equal-weight, mid-cap and small-cap rankings.
- Real Estate has joined the large-cap leadership group, by not seeing the same degree of strength from a mid-cap and small cap perspective. Industry group trends for Real Estate are improving across the board.
- Defensive groups have yet to see a sustained increase in relative strength.
