Posted June 30, 2017

Tech Weakness Weighs

June has historically been a positive month for the market and this June began with a strong rally to new all-time highs.  The month featured more volatility than we typically see, with multiple new all-time highs for the major indices, some of the best days this year, as well as some of the worst days this year.  Large cap tech has been leading the rally and mid-month we saw some profit taking in the sector that continued through month end, sending the tech heavy NASDAQ to a .9% loss for the month.  Oil prices had their worst first half since 1997, losing nearly 20% of their value, and that has also been weighing on the market. At the end of the month the S&P 500 was up .5% and is now up 8.2% for the year.
The month began with a 2 day rally of 1.1% that took the S&P 500 to its 21st all-time high this year.  Reports that Chinese factory activity was the weakest in 11 months and a disappointing employment report were both shrugged off as the market powered higher. The first full week of the month was relatively quiet with the volatility index hitting its lowest level in 24 years.  Oil prices continued to decline which led the S&P 500 to its first 3 day losing streak in 2 months, and we started to see some profit taking in the tech sector which had its worst week of the year.  A late week rally left the S&P 500 -.3% for the week.  The second full week was more of the same as a rotation from tech to value continued.  The Fed did raise interest rates .25%, which was what the market had expected, and Amazon announced they will be buying Whole Foods, which sent shares of Whole Food competitors like Cosco, Target and Walmart lower.  At the end of the week the S&P 500 had gained .1% but the tech heavy NASDAQ was down .9%.  Last week a bottoming in oil prices and a rebound in large cap tech stocks helped the S&P 500 gain .2% while the NASDAQ managed to gain nearly 2%.  This week featured large cap tech stocks and some of the highest volatility in that sector thus far in 2017.  News on Tuesday that the EU had assessed Google the largest anti-trust fine in history sent the NASDAQ down 1.6%, only to see it rebound 1.5% the next day, before dropping 1.4% on Thursday!
July is historically the best month of the year for stocks but, as we saw in June, history is merely a guide.  We will be watching oil prices and large cap technology.  If oil prices continue to rebound off their 2017 lows and technology stocks, leaders of the rally thus far this year, continue to attract buyers, the market is likely to move higher.  A noticeable decline in either of these sectors could generate some profit taking in the overall market.  The market continues to be richly valued but we are seeing strong earnings growth. There is also a good amount of cash on the sidelines looking for an entry point and there continues to be enthusiasm surrounding the current administrations pro-growth agenda.  We have raised cash and/or added inverse positions to many accounts but we will be buyers on a tradeable dip.