The last day of the second quarter of 2014 was a slow day for blue chips with buying centered on small- and mid-cap stocks. For the quarter, the S&P gained 4.7%, the Nasdaq rose 5% and the Dow industrials were up 2.2%.
Stocks opened lower Monday, but reacted well to better-than-expected pending home sales, which rose 6.1% in June versus a consensus estimate of 1.5%. Despite the strong housing report, volume was low, perhaps in anticipation of the abbreviated week due to the July 4 holiday. The markets will close for the week at 1 p.m. on Thursday.
The focus of economic reports for the week will be Thursday’s employment report. Economists surveyed by The Wall Street Journal are looking for 315,000 jobs added in June, up from 312,000 in May. The Journal noted that economists haven’t been this upbeat about jobs since 2010.
Gold futures had early losses but recovered, rising 0.2% to $1,321.80 an ounce. Crude oil lost 0.3%, falling to $105.37 a barrel.
At Monday’s close, the Dow Jones Industrial Average fell 25 points to 16,827, the S&P 500 was off 1 point at 1,960, and the Nasdaq rose 10 points at 4,408. The NYSE traded total volume of 3 billion shares, and the Nasdaq crossed 1.8 billion shares. Advancers outpaced decliners on both major exchanges by about 1.4-to-1.
The most-hated bull market in history continues, with the S&P 500 expanding its premium above the 17-month moving average despite a lack of public participation. Low volume continues, and so does the public’s frustration with the market.
Despite an 8%-plus run from its May low to Monday’s close, the small-cap Russell 2000 is still shy of its closing high, made on March 4. Volume is very light and breadth is flat, as is its MACD indicator.
However, the Nasdaq did close higher, and the mid-cap index has been leading the higher-quality stocks since the May lows. Thus, we’re hanging in there with the mid- and small-cap stocks.
Conclusion: Despite the recovery of small and mid caps, a review of the performance of seasonal sector performance in the Stock Trader’s Almanac reveals that from July to October there are traditionally just two sectors that consistently show profits: PHLX Utility Sector (UTY) and PHLX Gold/Silver Sector (XAU).
This is, of course, part of the “sell in May and go away” theory, which hasn’t worked for two years. Nevertheless, I will be focusing on these sectors for several weeks while still highlighting outperforming stocks in all sectors. Stocks like today’s Trade of the Day, GAMCO Global Gold, Natural Resources & Income Trust (GGN), can balance volatility and offset profit-taking by maintaining performance in a balanced portfolio.
It’s sometimes better to hit singles and doubles than to swing for the fences. We may be entering a period where a more defensive approach is warranted while still maintaining a 70/30 equity-to-cash split.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.