What the Market Wants: Fly to Safety (and not on American Airlines)
Given the market’s performance over the last month, we feel that investors should consider reducing the more speculative portions of their portfolio.
Last week opened with a couple days of modest profit-taking after a market surge from four stimulus packages adopted by the U.S., Europe, Japan, and finally China. A very strong Consumer Confidence and a positive S&P Case Schiller report on home prices kept the selling reasonably in check and the market losses small. A better-than-expected drop in Initial Jobless Claims on Thursday recharged the market despite an expected decline in Q2 GDP (most assumed the number would be lower due to the stimulus action taken the week before) and an almost frightfully sharp decline in Durable Goods that was buffered by a strong uptick from auto sales.
Thursday‘s gain recovered about half of the first three days’ losses. Alas, weak numbers from Chicago PMI and Michigan Sentiment on Friday sent the market down about 0.50%, resulting in a loss for the week in most style/caps and sectors from 1% to 2%. Only utilities were in the black. A classic “flight to safety” week! Health Care and Consumer Non-Cyclicals were the two next best sectors, confirming the investor sentiment as a “flight to safety.”
What about this week? What will the market want? Likely more of the same. Today, our markets opened sharply higher on the backs of a solid Consumer Sentiment reading this morning and a generally positive overnight market in Asia and Europe, notwithstanding weakness in the Nikkei and Ryder Cup euphoria in Europe. Unfortunately, the market went into reverse and ratcheted almost all the way back to even from a full 1% gain before a mini-rally at the close brought the S&P 500 back to a 0.25% gain and a full two percent below the recent four-year high of 1474.5 on September 14, 2012.
Today’s market performance can be placed in the “flight to safety” category, continuing last week’s performance, as Consumer Non-Cyclicals, Energy, and Healthcare led the way. The Nasdaq closed in the red, albeit only by 0.1%. Transportation stocks ended the day negative.
We all know investors hate uncertainty. But we are swamped with uncertainty as each of the four stimulus programs have their doubters (and how could they not since recessionary forces are not guaranteed to be resolved by any of these scenarios). Furthermore, our Presidential and Congressional elections, just over a month away, are not certain to generate a functional government. Then there is the turmoil in the Middle East and the South China Sea.
We can only say “Fly to safety” (and not on American Airlines, given their recent failure to properly bolt down passenger seats). If you have speculative portions of your portfolio and are concerned about this climate of uncertainty, we recommend that you consider shifting the more speculative positions into larger caps and flight-to-safety stocks, like Healthcare.
4 Stock Ideas for this Market
This week, I used the GARP preset search in MyStockFinder and filtered for mostly large-cap stocks and higher growth. Since Healthcare is our highest ranked sector looking forward, not including Financials (see market stats), we have included three Healthcare stocks for you to consider, as well as one Energy stock:
Tenet Healthcare Corp. (THC) — Healthcare
Marathon Petroleum Corporation (MPC)—Energy
Humana Inc. (HUM)—Healthcare
Celgene Corporation (CELG)—Healthcare