What the Market Wants: Despite the Fireworks, Market Fizzles

I hope you enjoyed the Fourth of July fireworks on Sunday, because there might not be much to celebrate on Wall Street this week.

Last week we warned that if most of the impending economic releases were negative, the market would likely fall worse than it did the week before.  And that’s what happened.  In fact, it dropped approximately twice as much as the week before. (It doesn’t feel so good to be right.)

Interestingly, the numbers weren’t all that bad, just somewhat lower than expected. In fact, there was a better-than-expected unemployment figure on Friday (9.5 versus the expected 9.6), but that was offset by the employment number (nonfarm payrolls) which fell -125,000.

The market’s 15% drop since late April seems to have turned Wall Street into a bargain basement. This morning, bargain hunters gave the market a nice pop, with the S&P 500 reaching an intraday high of 1042 (+2.0%), but it closed the day almost flat, up only +0.5%.

There’s not much on the horizon to boost the market, as we’re looking at fairly slim economic pickings during this short post-holiday week. This morning gave us yet another small disappointment from ISM (the June report on non-manufacturing was 53.8 vs. the expected 55.0). On Thursday we’ll see the chain store sales figures, the weekly initial jobless claims, and outstanding consumer credit; and on Friday we’ll get the wholesale trade report.

It’s hard to imagine anything particularly positive coming out of any of those numbers.

Market Stats. Small-cap Value turned in the worst cap/style performance for the week, down almost 8%, while Large-cap Growth did the best, losing “only” 5%.  Overall, growth stocks did a little better than value stocks in all three cap/styles, but the numbers were nothing to get excited about.

Click here to see the Market Stats.

The sectors lined up in a classic flight to safety, with three of the top four slots going to Consumer Staples, Healthcare and Utilities, although all had negative numbers. Despite the dollar having a bad week, worries about reduced demand sent the Materials Sector, which we had expected to be near the top, into dead last.  Forward looking, our system still favors Materials, along with Information Technology, Energy, Financials and Healthcare.

At 1022, the S&P 500 is now below both its 50-day and 200-day moving averages. To some experts, the fact that the 50-day MA has now fallen below the 200-day MA is particularly ominous. I’m not sure that matters, but the S&P 500 clearly broke major support when it dropped below 1040, and it will likely have a struggle going back above that level. There should be token support at 1000, but the next major support would be around 980, then 940.

4 Stock Ideas for this Market

This week, I stayed conservative by starting with Sabrient’s Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com), but I also included Mid Caps. I also adjusted the parameters by upweighting Technicals, Insider Buying, and Analyst Upgrades. Here are 4 new stock ideas that look interesting:

Treehouse Foods (NYSE: THS) – Consumer Staples
Apple Inc. (Nasdaq: AAPL) – InfoTech
Repsol YPF S.A. (NYSE: REP) - Energy
Symetra Financial (NYSE: SYA) – Financials

Until next week,

David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research
http://www.sabrient.com
and  http://Twitter.com/ScottMartindale

Full disclosure:  The author does not personally hold any of the stocks mentioned in this week’s “Stock Ideas.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.