This week the markets may be myopically blinded by Thursday’s Brexit vote. As noted several times I rhetorically think Britain will remain in the EU for the simplistic reason change will create an unquantified environment. Human nature dictates one fears more of what they don’t know rather than what they know and the conditions in England are not that dire to demand a tectonic change.
I will reiterate the polls of other major events were radically wrong, defined as the status quo remained by a wide margin.
Commenting about Friday’s market action, the Dow ended nominally but the NASDAQ led be technology and healthcare, two vastly over owned and recommended sectors that were priced to perfection fell about 1%. . This was the sixth market decline in seven days. The NASDAQ Biotech index fell 1.5% and is on the longest losing streak in 20 years.
As noted so many times, a simple premise for a sector/company to rally is more buyers than sellers and if everyone already owns a company/sector who is left to buy when selling commences even on the most insignificant negative news. No one.
Many times I have commented about the massive influence of index mimicking ETFs and algorithmic trading where the big get bigger and the small get smaller, essentially violating the standard FINRA regulation of “past performance is not indicative of future performance.”
Depending upon the data, large cap momentum growth had outperformed almost every asset class since at least 2011. Some data suggest the outperformance commenced in 2006.
The favorite sectors in large cap momentum growth are healthcare/biotech and technology, two sectors that have grossly underperformed since the beginning of the year. Is the large underperformance of this group a major reason for intense bearishness?
I think yes.
As noted above, Brexit will dominate headlines this week especially given the dearth of statistics until week’s end. At week’s end, various housing statistics is posted as is durable good, the LEI and a sentiment survey.
Last night the foreign markets were up. London was up 2.65%, Paris up 3.29% and Frankfurt up 3.47%. China was up 0.14%, Japan up 2.34%and Hang Sang up 1.69%.
The Dow should open sharply higher given the declining odds of Brexit. Oil is up almost 2%. The 10-year is off 15/32 to yield 1.68%.