Market Commentary: Volume tapered off slightly this past week, although the overwhelming majority of that volume was to the upside. Earnings season is about to begin once again, and then we will see to what extent companies were affected by the third-quarter credit crunch. As always, the emphasis will be on the future, so the market will be paying close attention as to whether the worst is truly behind us or is yet to come.
The 10-year Treasury yield has been drifting lower the past two weeks but still has not returned to its pre-FOMC meeting level. The high-yield marketplace has made a nice recovery from the August lows, but the likelihood of making another strong advance in this economic cycle is quite small.
Sectors: The charts below consist of 32 green bars and just one red bar. The Consumer Discretionary sector is the only slice of our investment groupings that has not regained positive momentum in the wake of the recent credit crunch. The Financial sector is stabilizing with the help of the FOMC actions, and this is helping many industries. Real estate and the domestic consumer have not yet been helped by the interest rate cuts, but they have at least received a psychological boost.
Styles: A surge in Small Cap Growth stocks this past week caused some turmoil in our style rankings. Perhaps it has happened before, but we can’t remember ever seeing Small Cap Growth and Small Cap Value at opposite ends of the relative performance rankings. We will need to see if this one-week small cap growth leadership has any sustainability. Meanwhile, all style groupings exhibited improvement in their absolute strength this week.
International: With an intermediate-term momentum reading of 169, it is probably safe to say that China has reached the unsustainable parabolic phase of its advance. The inevitable pullback and correction could be painful when it happens, but it will probably be somewhat tolerable if viewed in the context of the overall move. China was not alone in its upside thrust this past week, as the rest of the world joined in. Even Japan, long the laggard of global markets, is showing renewed vigor.
Sectors: The charts below consist of 32 green bars and just one red bar. The Consumer Discretionary sector is the only slice of our investment groupings that has not regained positive momentum in the wake of the recent credit crunch. The Financial sector is stabilizing with the help of the FOMC actions, and this is helping many industries. Real estate and the domestic consumer have not yet been helped by the interest rate cuts, but they have at least received a psychological boost.
Styles: A surge in Small Cap Growth stocks this past week caused some turmoil in our style rankings. Perhaps it has happened before, but we can’t remember ever seeing Small Cap Growth and Small Cap Value at opposite ends of the relative performance rankings. We will need to see if this one-week small cap growth leadership has any sustainability. Meanwhile, all style groupings exhibited improvement in their absolute strength this week.
International: With an intermediate-term momentum reading of 169, it is probably safe to say that China has reached the unsustainable parabolic phase of its advance. The inevitable pullback and correction could be painful when it happens, but it will probably be somewhat tolerable if viewed in the context of the overall move. China was not alone in its upside thrust this past week, as the rest of the world joined in. Even Japan, long the laggard of global markets, is showing renewed vigor.
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