The Dow Jones Industrial Average and S&P 500 continued to hit new all-time highs over the past week. The Nasdaq extended its consolidation phase, while the Russell 2000 remains the weakest major index in 2017.
The Dow Jones Industrial Average has outperformed since the June 9th tech correction.
Healthcare and industrials have lifted the Dow over the past few weeks. The Dow has a 21 percent allocation in industrials, its single largest sector, and 13 percent in healthcare. General Electric (GE) pushed the sector higher last week, but that move faded on Tuesday and into Wednesday.
Healthcare traded at a new high on Wednesday.
Biotech broke out to the upside on Tuesday, followed by pharmaceuticals on Wednesday. Healthcare is now firing on all four cylinders.
Value is consolidating its gains versus growth. This dip is mainly the result of a bounce in technology shares. The second largest growth sector is consumer discretionary. On Wednesday, XLY hit a new low for June. If the sector rotation thesis is correct, we should see technology follow XLY in the coming days and weeks. Technology and consumer discretionary combine for 52 percent of iShares S&P 500 Growth (IVW). Their combined weighting is 38 percentage points higher than in iShares S&P 500 Value (IVE).
The swing sectors for IVE are financials, energy, utilities and staples. These four are weighted 41 percentage points higher than IVW.
Energy is clearly the weakest sector in the market and further losses are likely.
Bank earnings estimates have been rising as higher interest rates translate into higher profits.
XLE has support around the $62 to $64 range. If that doesn’t hold, a retest of 2016 lows around $50 becomes much more likely. XES is already headed for a test of those lows. XOP has a bit of support around $30, but otherwise a drop to the 2016 lows also looks possible. Crude oil has support at $40. If it stays above $40, this looks like a sideways consolidation. Fundamentals offer no support with inventory still at or near record highs and U.S. production rising.
The U.S. Dollar Index needs to rally 2 percent to break out of the current downtrend.
May existing home sales beat forecasts. The median price rose to the highest on record. Analysts were looking for sales to fall 0.5 percent in May, but they rose 1.1 percent. Sales were 2.7 percent higher than in May 2016. Home builder stocks are near their 52-week high.