MorningWord 5/12/16: Fool Me Thrice?

by Dan May 12, 2016 10:32 am • Commentary

From where I site, and what I am looking at, 2016 could end very differently than 2015.  With the S&P 500 down 2.5%, the NASDAQ Composite down 9% and the Russell 2000 down 14% from their respective 52 week highs (made last year), the path of least resistance for U.S. stocks is no longer higher.

In case you missed it, the SPX is trading at the same spot it was on December 31st, 2014. At no point since then was the SPX up more than 4% from that starting level.  As you know all too well, sideways action, and lack of momentum to the upside during that time gave way to two separate 10% plus declines. So now that lack of upward momentum has carried on even longer, despite extremely accommodative monetary policy here and abroad.  Its been my view, and remains so, that the longer we tread water, the more likely the next move lower blows through the February low of 1810 in the SPX. Fool me thrice, shame on me:

from Bloomberg
from Bloomberg

Which brings me to where the performance is coming from in the SPX right now.  It’s still Utilities leading the pack, as was the case last year at the highs, Healthcare was right up there last time, but is now in the basement for a whole host of regulatory and political reasons. Energy has rebounded, but from a crash, along with Basic Materials, both still down though from year ago levels.  I find Consumer Staples a bit troubling as they are trading very near historical highs in terms of valuation, despite very tepid growth expectations.  Consumer discretionary which had been a monster has stalled, Financial Services are gonna stay in the crapper with rates where they are, and finally Technology, which has been the reason large cap U.S. stocks have been in the green. SO we have best performing sectors in the S&P 500 is either defensive or recovering off of a very low base, no bueno:

From SeekingAlpha.com
From SeekingAlpha.com

It’s my opinion that the current leadership at the moment is not what the U.S. stock market needs to make a sustainable breakout to new highs.

 

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On a different topic. Watching Amazon.com (AMZN) surge higher, single handily destroying the department store and apparel store industry could be massively deflationary for U.S. consumers. And it may be behind the next dip in employment. As online retail technology moves forward, with Amazon at the forefront, remember that retail jobs aren;t a zero sum game. AMZN currently employs 231,000 employees, with most here in the U.S..  Combine just Macy’s (M) at 158,000, Gap Stores (GPS) at 141,000, Nordstrom (JWN) at 72,500, Kohls (KSS), 32,500 and Dillards (DDS) 22,000. Department stores are going the way of the dodo, Amazon is a big reason why. There will be massive consolidation soon, resulting in hundreds of store closings and ten of thousands of jobs lost. Amazon will not be hiring those people. That will have a measurable effect on the consumer sector. Just some food for thought.