Where's the Heat?

Market Commentary: Global equity markets continued their recent advance and pushed to new highs with today’s bullish action. Of the major domestic indexes, the Nasdaq 100 has clearly been a laggard, but it managed to produce an upside breakout of its five-month trading range yesterday and extended that run today. So far, there have been no major hiccups as earnings season unfolds, and the majority of companies are reporting upside surprises. At last count, with 187 S&P 500 companies reporting, more than 68% are reporting better-than-expected earnings while less than 20% are reporting weaker-than-expected earnings. Meanwhile, the yield on the 10-Year Treasury is currently at 4.65%, which is just about the exact midpoint of where it has traded the past seven months.

Sectors: The Utilities sector has taken the top spot this week, an honor it has been sharing on and off with Energy and Materials. Healthcare has moved into the #4 slot, continuing its recent advance. We are seeing strength across the board, and even the downtrodden semiconductor industry is showing signs of life. None of the sectors are being hurt by the current release of earnings reports, with most areas meeting or exceeding expectations.

Styles: It’s all about the “middle” as the trio of Mid-Cap styles hold onto our top style rankings, while the “extremes” are assuming the role of relative laggards. This week, the Micro Caps join the Mega Caps at the bottom of our rankings. However, the spread is tight and all areas are doing well, but there are always leaders and laggards on a relative basis.

International: Merger mania arrived in the European Union this past week with Dutch Insurer ABN Ambro now in play. This sparked a widespread rally and helped push the European Union ahead of all other global areas except Latin America in our momentum rankings. Canada continues to move up our rankings thanks to its large energy and natural resource exposure, while the markets of the USA, Japan, and the UK remain the laggards.