U.S. stocks extended gains into a second week amid a rebound in technology stocks and a rally in biotech which, together, more than offset a slump in telecom and energy companies. After tech companies within the S&P 500 posted a 3.8% one-week selloff from their June 8th all-time high, the group has rebounded 2.3%. Investors had good reason to buy the dip as technology companies have had almost twice the earnings growth as the rest of the market. Biotech shares, as measured by the NASDAQ Biotechnology Index, rallied all five sessions to finish the week with a 9.6% gain. The release of the Senate's healthcare reform bill, uncertain as it may be, removed a large degree of uncertainty.
For the week, the S&P 500 rose +0.22%, the Dow Industrials edged +0.05% higher, and the MSCI EAFE (developed international) fell -0.18%.
What We’re Reading
As Europe Recovers, Activists Pounce -- Bloomberg
Oil in a Bear Market -- Reuters
Chart of the Week
Chart 1: A likely bounce back expected in the second half of the year.
Since the start of second quarter, U.S. economic data have been mixed. On one hand, the unemployment rate has fallen to 4.3% and consumer confidence remains at elevated levels. On the other hand, the demand side of the economy (i.e. light vehicle sales, housing starts, net exports and inventory growth, etc.) has disappointed in recent months, coming in below expectations and prior readings. While future data releases bear watching, it is worth viewing recent weakness in the context of the long-term drivers of economic growth.
As Chart 1 illustrates, real GDP growth is driven largely by the supply side (i.e. private payroll growth), and while second quarter GDP may look similar to the subpar reading seen in the first quarter, this weakness is being driven by a slowdown in demand. As a result, investors should not panic, as the steadiness of employment growth suggests this potential slowdown will not be as severe as some expect. Furthermore, according to J.P. Morgan, with private payroll growth remaining stable but exports, inventories and government spending all weaker in the first half, the economy is primed for a likely bounce back in the second half of the year. As a result, the continuation of a moderate but healthy economic expansion suggests that investors should stay the course and not deviate meaningfully from their predetermined asset allocation strategy.
Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.