The Advance: 13th – 19th May 2013
The S&P 500 closed the week up 2.3 percent for the month of May and 14.6 percent up for the year to date. At a time of year when it is common for investors to sell up and lay dormant for a while, studying the market trends, we’re looking at whether that’s the right move to make this week. Naturally there will be investors who stick to their methods and that’s fine. It doesn’t matter whether people are bulls, bears or pigs, everyone has their own ideas about what does and doesn’t work for them. There comes a point though when people look at the data and start to reconsider their plan of action.
For example, there is strong precedence for these advances to continue till the end of the year. In fact, on more than one occasion, markets that have started the year as strongly as they have this year have continued until the end of the year, seemingly regardless of the economic climate and without rhyme nor reason.
If we look at the market over last week though, there is grounds for this rally to continue and possibly become the foundation for an economic recovery. While the blue chips across the globe have been grabbing the headlines of financial publications the world over, smaller stocks in the lesser known indices have actually been outperforming the market by some fairly significant margins.
Ryan Detrick, a Senior Technical Analyst for Schaeffer’s Investment Research, said “What’s encouraging is that small-cap stocks have been outperforming the market recently. It’s a sign that the market is going for even the riskiest sectors.” That comment is strong backed up by the strong performance of the FTSE 250, the Russell 2000 and many other “mid-chip” benchmarks on multiple continents.
So where can we expect to see growth next week? Well, that’s truly the billion dollar question. The signs point towards growth in technology and other sectors that are heavily influenced by the economic climate. While we saw good gains in tech last week, it was all really somewhat overdue. The borderline comical IPO of Facebook (for those without a horse in that race, that is) last year seemed to have a massive effect on sentiment in the sector. After all, if it can happen to Facebook, it can happen to anyone.
The same can be said for the financial sector. The series of scandals that place last year in the banking sector, which are now finally coming to fruition in courts across the globe, with fines being handed out that run into the hundreds of millions, drastically affected the sectors growth. With the recent rallies has come a new wave of confidence, which has allowed these lagging sectors to catch up with their peers.
The real tests for market confidence will be coming thick and fast this week though. Monday sees April’s retail sales report being released, Tuesday will bring a report on import and export prices, Wednesday is the day for U.S Producer Price Index, The Empire State Index and a host of other reports. It doesn’t stop there either. Thursday offers the U.S Consumer Price Index, Housing, Unemployment data. The list really does go.
55 companies on the S&P 500 are still to announce their earnings for the first half but with a healthy majority of their predecessors announcing better-than-expected profits, investors will not be overly concerned about those announcements. Make no mistake, the next week will be all about economic data reports in the U.S, as investors look for cracks in the worlds largest economy.