Market Strategy Radar Screen Weekly January 30, 2017

 Market Flirts with New Highs

As Cyclical stocks continue to outperform the Defensives in 2017

The rally in stocks stateside drew on reported earnings results, a spate of M&A announcements as well as on the market’s anticipation for fiscal stimulus, a reduction in regulation, lower taxes and the potential for repatriation of funds held by US multinationals abroad—all possibilities on the horizon.

All in all it was a week that showed a reinstatement of the “risk-on” mode for stocks stateside that pushed stocks to close higher on the week that further confound skeptics and bears who had looked for the rally to fade earlier in the month.

The Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite respectively added 1.34%, 1.03% and 1.9%. The S&P 400 (mid-caps) and the Russell 2000 (small caps) advanced 1.31% and 1.4% respectively in the same period.

Performance among the 11 sectors of the S&P 500 last week favored cyclicals with Materials, Information Technology, Financials, Industrials and Consumer Discretionary respectively posting gains for the week with each of those sectors outperforming the broad index.

A good number of foreign markets around the world posted gains moving key international benchmarks higher (in local currency and when translated into dollars).

On the week, the MSCI EAFE (developed markets ex-US and Canada), the MSCI Emerging Markets and the MSCI Frontier Markets posted respective gains on the week of 1.29%, 2.53% and 1.9%

In our view, last week’s global action among the equity markets provided more than a few clues that investors are seeking to diversify their exposure to equities across borders as economic data points to an improvement in economies outside of the US and prospects for a global economic recovery led by a stateside economic expansion that increasingly shows signs of sustainability.

The proposed fiscal stimulus agenda of the new administration in Washington as outlined so far has helped push stocks higher even as detail, implementation and execution risks remain.

Issues tied to geopolitics, trade and immigration—which are highly politically sensitive as well as day to day challenges to traditional protocol from a new President with an unconventional style could cause hurdles to develop for the new administration’s agenda in the weeks ahead. Whether these challenges create speed bumps or detours to the market’s current upward trajectory will be found out as the weeks ahead unfold.

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