See-Saw Up, See-Saw Down...

Market Commentary: The weekly see-saw pattern we commented on last week has extended itself once again. If you are keeping score, it has been 11 straight weeks. If the pattern continues, the four market days leading up to next Tuesday (July 10) should have a negative return.

The rally this past week was broad and certainly welcome, but many indexes failed to establish new highs in the process. The most notable exceptions were the Nasdaq 100 and Nasdaq Composite, both of which established new highs for this cycle, while remaining approximately 50% below their historic peaks.

The sub-prime lending woes have not sparked a “flight to quality” in the bond market as of yet, but it appears that maybe a “flight from junk” is underway. The yield on the 10-year Treasury is now at 5.14%, reversing sharply from below 5.0% earlier in the week. Additionally, the spread between high-yield and government bonds is now widening after reaching historical lows about a month ago. The pullback in the high-yield market has been orderly so far, but it is not clear that money leaving the high-yield segment is shifting to Treasuries.

Sectors: The relative strength of the major market sectors is readily apparent in the graphs below. Energy remains on top with Materials, Telecom, Industrials, and Technology in a near four-way tie for second place. The Financial sector has now replaced Utilities at the bottom of the list as sub-prime concerns continue to spread.

Styles: The style categories remain in a relatively tight range with Mid-Cap Growth still in the driver’s seat. The headline news stories about a month ago of a market shift to Mega Caps appears to have not come to fruition with that group currently occupying the bottom spot in our style rankings.

International: China, Latin America, and other Emerging Markets continue to provide the global market leadership with the large capitalization markets of the USA and Japan lagging. China is once again starting to appear frothy, but it has demonstrated that it is capable of having extreme upside momentum for an extended period of time.