US STRATEGY – Buffett Rolls The Bones

The S&P 500 is up for two days in a row, rising 0.2% yesterday.  Yesterday, M&A activity ruled the news flow with the high-profile Berkshire Hathaway $44BN deal to buy Burlington Northern.  Without the improvement in the XLI the market would have been down yesterday.

The Industrials sector was led higher by the Transports, up 5.3% yesterday.  The move was underpinned by the Buffett deal as the S&P Railroads Index increased 12% yesterday.  Additionally, SWK agreed to acquire BDK, which rose 31% on the day.  The other key acquisition was in the coffee sector with Peet’s buying Diedrich Coffee.

Yesterday, the Materials were the third best performing sector outperforming the S&P 500 by 0.8%.  The precious metals stocks outperformed with the rally in gold and silver.  The rally in gold was fueled after the Reserve Bank of India purchased 200 metric tons of gold from the IMF for $6.7B.

On the day the VIX declined 3.3%, declining for the second day in a row.  The dollar index finished slightly higher on the day.

The three best performing sectors were Industrials (XLI), Energy (XLE) and Materials (XLB), while Technology (XLK), Consumer Staples (XLY) and Utilities (XLU) were the bottom three. 

Tech was one of the worst performers yesterday, closing down 0.4%.  Weighing on Technology stocks was the decline in the semi space, with the SOX down 1.3%.  Both Morgan Stanley and UBS downgraded the semi and semi-cap equipment groups today.

Today, the set up for the S&P 500 is: TRADE (1,065) and TREND is positive (1,025).   The Research Edge quantitative models have 7 of 9 sectors in the S&P 500 positive on TREND and 1 of 9 sectors are positive from the TRADE duration.  Consumer Staples is the only sector positive on both durations. 

The Research Edge Quant models have 2% upside and 2% downside in the S&P 500.  At the time of writing the major market futures are poised to open up to the upside. 

The Research Edge MACRO Team.

US STRATEGY – Buffett Rolls The Bones - S P500

US STRATEGY – Buffett Rolls The Bones - s pperf