Supreme Court to Rule On Obamacare
Once again the stock market looks indecisive ahead of major news events. Two will compete for attention in the next few days.
Tomorrow will bring the U.S. Supreme Court’s much-anticipated ruling on health care reform. Whatever the decision is, we feel sure it will create winners and losers. We will also get to see an interesting confluence of professions: Bankers will need lawyers to interpret what judges think politicians can do to physicians.
While all this unfolds in the U.S., European Union leaders will convene a two-day summit meeting in Brussels. The chatter seems to indicate Germany is moving toward a more flexible policy than Chancellor Angela Merkel has shown thus far. Merkel herself denies this, of course, and dozens of other such meetings have come and gone without any major revelations. Nevertheless, this one seems to be more intensely anticipated than prior summits. Maybe Europe is on the verge of some breakthrough.
In the U.S., Treasury bonds remained relatively steady. Even a new, improved Operation Twist could not stir things up. The last three weeks were the steadiest such period for T-bonds in more than a year. Enjoy it while you can. Volatility will be back soon enough.
Sectors: Last week we thought Telecommunications might take the lead, and sure enough it did. Health Care also moved up a notch to second place. Tomorrow’s Supreme Court ruling, whatever it is, may cause some industry rotation within the sector. Former leader Utilities slipped down to third but still looks relatively bullish. Consumer Staples stayed in fourth place, well ahead of #5 Consumer Discretionary. The latter lost some momentum and is now slightly negative. Financials, Technology, Industrials, and Materials are still a tight group but a little more dispersed than last week. Energy has a solid grip on last place, and will need major repairs in order to climb the ranks.
Styles: Last week’s near-neutral alignment now looks mostly bearish. Micro Cap is now on top of the pile despite its zero momentum. The group received some added attention as Russell made annual index changes. Mega Cap slipped to second place, meaning we now have Micro and Mega holding the top two spots. Capitalization extremity seems to be in favor right now. The pattern continues down the chart as all three Mid Cap categories – the least extreme stocks from a market cap perspective – are on the bottom. Currently we see no preference for either Growth or Value.
Global: The U.S. is still on top but lost what little upside momentum it showed a week ago. World Equity moved up two notches to second, followed by a rapidly-rising Japan. That ascent was not, however, due to anything good about Japan. Rather it had more to do with everything else being even worse. The U.K. slipped down to fourth. Pacific ex-Japan fell to fifth place. Canada, EAFE, and Emerging Markets now constitute the middle of the pack. A severely weaker China broke up the Europe-Latin America axis by taking over the bottom spot. All three have very strong downward momentum. This is, to some extent, self-limiting because they cannot fall at these rates indefinitely. Still, recovery is not necessarily imminent.
“This one is kind of uninvestible. At the end of the day, it’s hard to get in ahead of the Supreme Court justices. It’s a crap-shoot at this point”
Craig Miller, Managing Director of Healthcare Tradeing at Stifel, Nicolaus Co.
June 27, 2012
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