MorningWord 1/15/15: Take Me To Your Leader

by Dan January 15, 2015 9:22 am • Commentary

Despite the relative attractiveness of U.S. equities to almost every other market in the world, I think it is safe to say that the for the moment, the S&P 500 lacks leadership.  So far in the new year the three top performing sectors are all defensive, Healthcare, Utilities & Consumer Staples. Per


The drop in crude in the second half of 2014 caused a fairly dramatic rotation out of energy stocks into financials, homebuilders and retail stocks.  Just this week we have seen fairly large holes blown into the investment thesis for these sectors, with weaker than expected results and commentary by moneycenter banks struggling with ZIRP and high regulation, weak profitability and outlook from KB Home (KBH) and an eye-popping drop in December retail sales.

Oh, and tech, we will get a good sense in the coming weeks, but I suspect impaired spending from the energy sector and the strong dollar are likely to keep forward guidance subdued.  The Nasdaq 100 remains a very interesting group of stocks with the 10 largest components making up 50% of the weight (a combined $2.5 trillion in market cap) and more than the combined value of the remaining 90 stocks.  In some ways, the fate of those top ten stocks could determine the next 10% move in the broad market up or down.

Strength in defensive equities, paired with the Fed who is scared shitless to raise rates because of the backdrop of weak global growth, a surging dollar and the fear of global deflation is not exactly an optimal environment to commit new capital to equities.  But as I mentioned in yesterday’s opening post, referring to early earnings season trends:

the price action of five or so stocks that have reported does NOT make a trend and often times the early trend in earnings season has a tendency to reverse itself as sentiment shifts too much, too soon and investors become desensitized by the early themes.

The reaction to the small earnings sample so far has been less than favorable, but it’s early in the cycle. And as we get closer to next week’s ECB meeting, with the potential for oil stabilizing (it’s up 10% from yesterday’s lows) the greater the likelihood that we have a counter-trend rip.

Leadership may come down to AAPL’s fiscal Q2 guidance on January 27th. That could determine the sentiment towards tech. I suspect this is the sector that either leads the market back to the prior highs or a re-test of the October lows in Q1.  Yep that’s right people, all roads lead back to AAPL.