US Strategy – Last Man Standing
Only Consumer Staples remains positive on both TRADE and TREND.
On Wednesday, the S&P 500 closed at 1,042, down 2.0%. Yesterday’s was the fourth down day in row for the S&P 500 and nearly every sector is broken on TRADE. Once again the heightened volatility continued yesterday with the VIX up 12.4% and it has now moved 25.6% in the past week. The VIX has been up for five straight days.
The S&P 500 closed around the worst levels for the day, as the continued correction in the risk trade was fueled by concerns about the early steps on the part of global central banks to reduce some of the stimulus measures. The MACRO calendar is also working against the market, with the unexpected decline in September new home sales.
The low beta defensive stocks outperformed yesterday. Consumer staples were the best performing sector, with Tobacco stocks up on the day.
Housing stocks underperformed again yesterday with the XHB down 4.9%, as new home sales fell 3.6% month to month in September to a 402,000 annualized pace, the biggest decline since last December and well-below the consensus of 440,000. In addition, August was revised down to 417,000 from 429,000. The Homebuilders are rallying in early trading today; there is clear bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers. What remains unresolved: just how far past Nov. 30, the size of credit and how many more buyers would qualify.
Yesterday, four sectors outperformed the S&P 500 and every sector was down on the day. The three best performing sectors were Utilities (XLU), Healthcare (XLV) and Consumer Staples (XLP), while Energy (XLU), Financials (XLF) and Materials (XLB) were the bottom three.
The Materials (XLB) continued to underperform today as the REFLATION trade unwinds, as the dollar is now up for five straight days. The UUP was up 0.4% yesterday and is now up 1.8% over the past week.
Today, the set up for the S&P 500 is: TRADE (1,028) and TREND is positive (1,017). The Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 1 of 9 sectors are positive from the TRADE duration. The only sectors positive on both durations is Consumer Staples.
The Research Edge Quant models have 2.5% upside and 1% downside in the S&P 500.
The Research Edge MACRO Team.