This was a week like we haven't seen in a year, punctuated by political incompetence like we haven't seen in almost three years. Hopefully Congress and the President can end this terrible game of chicken shortly. Here is how we look as the first month of the second half of the year ended:
Top 20 lost ground this month and has had a very tough three months. It's important to remember that the model had a strong run into the end of April. Still, the model is trailing the market marginally this year. For July, the model lost 2.61%, while the S&P 500 gave up 2.02%.
CG/B lost a little ground too, but it continues to steadily outperform the stock/bond index. For July, the model fell 0.91%, while the benchmark surrendered 0.58%. YTD, the model is up a respectable 2.2% vs. the benchmark.
The pleasant surprise of the past few weeks has been the resurgence (finally) of Sector Selector ETF, which is now 0.5% ahead of the S&P 500 since we launched three months ago. The improvement comes as Technology has outperformed the market and Emerging Markets have recovered. For the month, the model fell 1.34% compared to the 2.02% decline in the S&P 500.
Outlook
While many believe that the weakness in stocks was due to the uncertainties out of Washington and the potential for a downgrade even if they get a deal, this week was all about earnings. The earnings season got off to a great start, as the biggest companies (AAPL, GOOG, IBM and others) not only didn't cut guidance but ultimately boosted their outlooks. This week, though, there were some misses that resulted in brutal reactions. I checked this morning - 24 of the stocks in the S&P 500 were down in excess of 10% this week.
As painful as this week was (and a reminder that the road has lots of curves), I don't believe that anything really changed technically. While some charts were destroyed, several others look fantastic. It's still a half-full/half-empty debate. 7 months into the year, the market is up 4%. While this is a little behind where I expected we would be, the 20% return I have forecast is still attainable.
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Have a great weekend!
Alan Brochstein
