Global markets have remained volatile into April, with a big tug of war between bulls and bears sending prices of stocks and commodities hurtling in both directions. While the consumer and political backlash against the technology sector continues to grow, kicking at one of the key foundations of stock market growth over the last four decades, fears for the future have broadened into other sectors.
The growing prospect of a trade war between the US and China has rattled investors as it has the potential to disrupt the global economy, cut into corporate earnings and possibly reduce resource demand. Battles over steel and intellectual property have expanded into manufacturing, automobiles and agriculture as China fights back with tariffs of its own. This growing battle over trade has the potential to overshadow the upcoming US and Canadian employment reports. At the same time, it also appears to be pushing the US toward accelerating NAFTA negotiations where developments could potentially rock the markets.
With earnings season approaching, we continue to monitor for profit warnings ahead of results. So far confession season has been quiet, a potential silver lining hidden within this week’s dark clouds.
In this issue of week’s Equity Leaders Weekly we look at the impact of increasing uncertainty and volatility on the gold price. We also take our monthly look at the SIA Sector Scopes reports to investigate changes in sector leadership within the stock market.
Sector Scopes Monthly Update
The Sector Scopes, found in the Markets section of the SIA Charts website provide a visual means for identifying shifts in money flow and sector leadership in stock markets. Sector Scopes measure the Bullish Percent (percentage of stocks in a group on bullish Point and Figure signals) for 31 stock sectors on a daily basis.
Market conditions and sector performance have changed dramatically over the last two months. At the beginning of February, the majority of groups were clustered at the right side of the chart, a sign of extreme enthusiasm just before stocks started their big sell off. By early March, stocks had stabilized but the Sector Scopes chart showed that sector bullishness had become more widely distributed, a sign we have moved from an index driven market to one of sector rotation and stock picking.
Following the second wave of broad based declines in stocks over late March and into April, the Sector Scopes report shows the sectors shifting into the left hand side of the chart indicating a growing general caution or bearishness but not an extreme level of pessimism.
There have been several significant changes among groups as well. For example, in the interest sensitive area, Real Estate and Utilities which had been the most depressed groups through the winter have bounced back toward the middle. Banks, on the other hand, which had seemed to be skating through the rising interest rate environment unscathed, have dropped off dramatically.
Other groups that have weakened significantly include: Internet, Media, and Construction. On the other hand, Aerospace remains relatively strong and the only group with a Bullish Percent above 53%. Interestingly, despite problems with driverless technology development and getting caught up in Chinese tariffs, the Auto sector managed to improve slightly although it remains weaker than most other groups.
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