Thanks to yesterday’s rare downgrade of Apple (AAPL), the markets took a little breather after several days of all-time highs in the major indices. The Dow (^DJI, DIA) fell -22.85, to close at 21,184; the Nasdaq (^IXIC, QQQ) dipped marginally to finish the day at 6,292, down -10.11; and the S&P 500 (^GSPC, SPY) closed out the trifecta of indexes, down -2.97 to 2,436—all within striking distance of their all-time highs.
We had another terrorist attack in London over the weekend and the biggest geopolitical uprising in the Middle East in 25 years. The VIX (^VIX) is trading below 10 again, as both bonds and stocks sold off marginally yesterday. The service sector continues to grow, but at a weaker pace, according to the Institute for Supply Management (ISM). The index fell to 56.9 in May from April’s 57.5, which was in line with economists’ expectations. Any number above 50 shows continued growth. All this, and it was only Monday.
The rest of the week could get very interesting. Most of the market movers will probably be generated by Washington. We have former FBI director, James Comey, who was fired by President Trump only a few months ago, speaking under oath before the Senate Intelligence Committee on Thursday. That could generate a lot of headlines, but as for any real substance, it seems more of a “he said-she said” type of day on the Hill.
Today, the Senate begins voting on key nominees for energy posts in the Trump Administration. Later in the week, the Senate will start to examine the Trump Administration’s 2018 budget plan. It could be a bumpy road for the markets this week, but I don’t expect any major setbacks to this rally. One of the key reasons I like the strength of this rally is the sector rotation since the election.
After the election, it was all about the banking sector, private prisons, and infrastructure stocks. Then the market, quietly and smoothly, switched to the tech sector or, as we call them, the “FANG” stocks: Facebook, Amazon, Netflix and Google. This group has led the tech sector to new highs almost weekly.
Out of the S&P 500’s 11 sectors, tech (XLK) is the biggest gainer—not only in 2017, but also since the election. Merrill Lynch notes that investor inflows into the tech sector are rising at the fastest pace in 15 years. According to the investment bank, that is a sign of “renewed exuberance” — a view I totally agree with!