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Is The New Leadership Hand-off Attempt Failing?

CAMS Weekly Views from the Corner – Week Ending 7/21/2017

Leadership – it’s a crucial part of the stock market’s storyline at any given time.  First, the actual presence of leadership is important in the sense of the type of sector(s) that are acting as leaders.  Second, the quality of said sector(s) leadership gives us insight into the inherent strength of a stock market backdrop.

For the bulk of recent months we have had a clear leader via the Technology sector with little help elsewhere outside of occasional blips here and there.  In fact, the largest concern had been the relatively small number of Tech stocks that were producing out-sized gains being responsible for the bulk of the Tech leadership results.

The concern of such limited leadership is the vulnerability it offers for a sudden and out-sized pullback.  We have experienced this within the Tech leadership run whereby on May 17th and then again on June 9th the Tech space took a sudden and unexpected fall thereby erasing multiple weeks of gains.

Since early June the stock market has been interesting in its search for leadership.

The immediate observation was noted with the stock market seemingly shifting from the Tech leadership over to small sized companies along with the Dow Industrials and the Dow Transport areas.  That is certainly a favorable line-up for leadership.

The issue is those areas have not been able to “get it going” if you will in a notable way.  Meanwhile, the Tech space has attempted to come off of its downfall and has trended back up to previous levels.  This leaves us at an interesting juncture from a leadership observation perspective.

Can Tech leadership regroup and continue its leadership ways?  Can the small sized companies and the Dow Industrials/Transport areas truly take the baton and lead this market for the bulk of the remaining months of 2017?  Can they all gather momentum and lead together, or more problematic, will they all fail to show true leadership leaving us vulnerable to what we call a leaderless market backdrop?

The central consideration is whether the S&P 500 can continue to add to its positive 10% return thus far in 2017 or will it be vulnerable to a pullback.

A mere five percent correction (remember those minor bumps in the road that would appear from time-to time?) would reduce its year-to-date return in half – certainly not the end of the world but is worth noting.  The presence and the quality of leadership will help answer this central question.  For now we watch closely for direction in this leadership watch and will share accordingly.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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