U.S. equities mostly finished lower on Friday in quiet trading. Headline flow was light, with more attention seemingly focused on possible cabinet picks from president-elect Donald Trump than anything else. Some soft results from retailers did, however, raise a few eyebrows.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 dropped 0.2%, the Nasdaq Composite gave back 0.2% and the Russell 2000 gained 0.5%. Gold lost 0.7%, the dollar climbed for the 10th straight day and oil was volatile finishing with a gain of 0.6%.
Treasury bonds resumed their recent weakness, pushing the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) down to fresh lows not seen since early January. That boosted the ProShares UltraShort Treasury (NYSEARCA:TBT) recommended to Edge subscribers to a gain of nearly 28% since recommended on Aug. 16. And it boosted the 30-year Treasury yield further past the 3% benchmark hitting levels not seen since late 2015.
Telecom and energy stocks led the way with gains of 0.5%. The healthcare sector was the laggard, down 1.1% on weakness in pharma and biotechs. Marvell Technology Group Ltd. (NASDAQ:MRVL) gained 10.8% on a top- and bottom-line earnings beat and solid guidance. Ross Stores, Inc. (NASDAQ:ROST) gained 3.8% on an earnings beat driven by a 7% surge in comp-store sales, an increase from the 4% growth seen in the second quarter and well ahead of the guidance for a 1% or 2% increase.
On the downside, Gap Inc (NYSE:GPS) fell 16.6% on in-line earnings and a reiteration of EPS guidance, as management highlighted a traffic decline throughout November and possible headwinds to margins from expenses going forward. Citigroup analysts followed with a downgrade.
Also in the doghouse was Abercrombie & Fitch Co. (NYSE:ANF), which fell 13.8% as earnings missed on a 6% drop in comp-store sales. Forward guidance was also weak.
Overall, investors continue to shake off the shell shock from last week’s Election Day surprise. The large-cap stocks in the Dow have powered to new record highs, but tech stocks have languished. The dollar has hit 14-year highs, but bonds have been hammered. And while U.S. markets are ebullient, emerging market assets have been under pressure.
This binary performance divergence has resulted in some aggressive fund flow movements as investors chase the winners. According to the latest Flow Show report form Bank of America Merrill Lynch, $28 billion has flowed into stocks (the largest inflow in two years), while $18 billion left bonds (the largest outflow in three-and-a-half years).
This gap between stock inflows and bond outflows is the largest ever.
The “violent rotation” they noted was seen in other areas as well. Financial stocks enjoyed a $7.2 billion inflow. Materials enjoyed the largest inflow in three years. But precious metals suffered the largest outflow in more than three years, while emerging market stocks saw the most severe outflows in 14 months.
This belies the apparent strength of the post-Trump rally as measures of market breadth continue to narrow and upside volume collapses. For now, investors should remain cautious and skeptical about chasing already extended post-election winners.