Stocks Fell After Hitting New Highs Last Week
After all was said and done, underneath the surface, it wasn’t a pretty week on Wall Street. On Monday, the benchmark S&P 500 hit a new high for the year, then turned lower after several key areas of the market began to fall out of bed. Social media stocks were smacked hard last week after several key companies lowered guidance. The Fed met last week but didn’t say much as they removed all calendar references from their after market commentary and remain data-dependent. So far, the data remains lackluster at best which lowers the odds of a rate hike in the near future. The big winners (so far) from earnings season include: Amazon.com ($AMZN), Netflix ($NFLX), Hasbro ($HAS), Domino’s Pizza ($DPZ), Skechers ($SKX), Dunkin (Donuts) Brands Group ($DNKN), Microsoft Corp ($MSFT), O’Reilly Automotive ($ORLY), and YUM Brands ($YUM), Skywest ($SKYW), Web.com ($WWWW), Equinix ($EQIX), Styngenta ($SYT), Nutri System ($NTRI), Brink’s Co ($BCO), Teradyne Inc ($TER), Skyworks Solutions ($SWKS), GoPro ($GPRO), Estee Lauder ($EL), Abiomed Inc ($ABMD), Golar LNG ($GLNR), Energizer Holdings ($ENR), RetailMeNot, Inc ($SALE), Herbalife ($HLF), BlueBird Bio ($BLUE), HubSpot Inc ($HUBS), Alibaba Group ($BABA), Qorvo Inc ($QRVO), Visteon Copr ($VC), Norwegian Cruise Line Holdings ($NCLH)
On the downside: Whole Foods Market ($WFM), Keurig Green Mountain ($GMCR), Kate Spade ($KATE), Lannett Co ($LCI), Nu Skin ($NUS), Terra Nitrogen ($TNH), Tumi Holdings ($TUMI), Noodles & Company ($NDLS), Qualys ($QLYS), Groupon Inc ($GRPN), News Corporation ($NWSA), Vitamin Shoppe Inc, ($VSI), Fossil Inc ($FOSL), Frontier Communication ($FTR), TriNet Group ($TNET), Zulily Inc ($ZU), Weight Watchers ($WTW), Walter Energy Inc. ($WLT), Skullcandy ($SKUL) Twitter ($TWTR), Yelp ($YELP), LinkedIn ($LNKD), Constant Contact (CTCT), Accuray ($ARAY), Cooper Tire & Rubber ($CTB), Abaxis ($ABAX), Texas Instruments ($TXN), Buffalo Wild Wings ($BWLD), Baidu Inc. ($BIDU), Stratasys ($SSYS), Harman ($HAR), Nokia ($NOK), Travelers ($TRV), 3M ($MMM), Chipotle ($CMG), Pulte Group ($PHM), Biogen Inc ($BIIB), Generac Holdings ($GNRC), First Solar ($FSLR), and American Express ($AXP), just to name a few. We mention this because history shows us that some of the market’s strongest performers occur from big gaps up on earnings and some of the weakest stocks gap down after reporting numbers. Even though we saw some distribution (selling) last week, it is important to note that on Monday, the major averages hit new highs (record highs and 2000 highs for the Nasdaq), and the broader trend remains higher – for now. In the short term, the long range-bound action we have seen most of the year remains in place.
Monday-Wednesday’s Action: Earnings Continue To Be Released
On Monday, stocks fell after a slew of biotechs got hammered. The benchmark S&P 500 hit a fresh record high on Monday but then turned lower which is not an ideal sign. The biotechs have been one of the strongest areas in the market over the past few years and continues to be a good proxy for the broader risk appetite from institutional investors. Therefore, that area must be watched closely. Once again, China’s Shanghai Composite led other global stock markets and soared +3.0% after reports spread that the People’s Bank of China (China’s Central Bank) was looking into buying local government bonds (Their latest attempt to boost markets). In Europe, optimism spread regarding the ongoing Greek drama. On the upside, steel and gold stocks rallied nicely as they bounce off a near term low. The Market Vectors Gold Miners ETF ($GDX) and Market Vectors Steel ETF ($SLX) rallied +2.1% and +0.8%, respectively. After Monday’s close, Apple Inc ($AAPL) reported another very strong quarter with iPhone sales as the standout winner.
Thursday-Friday’s Action: Biotechs Break 50 DMA
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.