There was no game-changing outcome of the Trump / Merkel meeting; nor even an expiration that pretty much ran out of steam coincident with their afternoon news conference, that spiked on amicable initial reassurances, then waned immediately as President Trump alluded to 'wiretapping' which he thought of course he and Angela had 'in common'. Actually that's when, but not why, a market fade occurred.
In reality the market was trying to put in a rebound and we knew it was likely a dicey prospect for the tail-end of expiration (as mentioned earlier as well), with short-covering pretty-much consumed by the Wednesday rally and firm finish on Thursday. That's typical of quadruple expirations (Quarterly) as so much is unwound before final moments, and in this case the rake hike rally.
More notably breadth was not bad; Oils retreated some; but from an overall perspective, little of this is surprising. Next week we may see early softness and an intraweek rally; but I suspect it has very low chance of higher highs, at least in the S&P, whereas the Nasdaq is there and could build upon it if you have additional oil strength.
The weakness in some major pharmas did not help, and that's where we're glad we had forewarned that Amgen looked like it was pretty exhausted a day or two before Friday's drop, which was a result of fairly frustrating heart tests (of outcomes, not cholesterol declines, or the reduction of plaque), and concern about insurance co-pays that we'd already learned were very high for Repatha (thus now others decline more or less in sympathy, including other pharmaceutical stocks developing new monoclonal antibody drugs, like Sanofi and Regenron).
A key factor overlooked by regulators might just be tens of thousands of cardiovascular events would have been avoided as well as incredible costs, had such drugs been in wider use. Perhaps that's a reason Amgen offered to refund the drugs co-pay costs in full to anyone that gets a heart attack while using it (interesting). The problem with outcome tests often means you have a patient population that is older than average; prone to cardiovascular events anyway; so a 20% heart attack reduction beyond that provided by a usual series of statins and so on, is actually quite useful in the broad view. Regardless we suggested a day or two earlier to ring the cash register if you bought it when we championed Repatha after the New Orleans presentation last fall, as it was up a lot and acting toppy (along with the major indexes).
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Between now and the dog days of summer we suspect a significant market correction effort; but not a Draconian catastrophe, provided that efforts to derail US recovery and renewed technological prowess are not heavily impeded by infighting. Stall a tax-reform package too long (we're borderline there) and it becomes really impossible to make cuts retroactive to Jan. 1 of this year; which will dampen capital outlays and so on until they can be captured in 2018, logically. Daily action basically called for a testing/double-top style patter this past week; including fading (aside from expiration gyrations) after the Fed rate hike I'd anticipated the stock market would rally, rather than decline. I'm surprised a good number of strategists and analysts seem 'upset' the market went up. A few even say the market misunderstood the Fed; or the Fed is wrong. Well, I said all along the economy was sluggish; but the Fed would hike anyway.
I thought they telegraphed that adequately and thus the surprise is so many at this point can't believe it. Sounds like they didn't position portfolios properly, perhaps all along since the election of Trump and really 'need' a decline. At this point short interest is diminished, so odds of a meaningful pullback are increasing. Hence, if these institutions intentionally withhold investing that's actually going to help the market back-and-fill and ultimately correct more. Of course Oil remains the wild card, capable of helping should it rally anew.
Conclusion I'm saying this is and has been in the sputtering-out process; with variable rotational correction risks that we'll evaluate as S&P's pattern evolves. Nasdaq is at all-time highs now. S&P can be viewed as a double top or secondary test of the preceding high which faltered just a bit late on the last day of Expiration (Friday). Odds for a rebound from the first meaningful round of retreats underway as well as contemplated during the April-May timeframe, remain pretty good in a market climate that has mostly ignored the political rapture dominating the news, which fails to focus on the quiet increases in economic prospects. |
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