An analyst at Morgan Stanley made the case for a 10% selloff as the market is exhibiting an inability to absorb losses in technology.  Pointing out the market has been in the process of a “rolling bear market” that “every sector in the S&P 500 has gone through a significant derating” with the exception of technology and consumer discretionary.

The report does “recognize that money can also move from these sectors to others thereby leaving the S&P 500 around current levels.”

This has been the greatest fear for market watchers, including myself, for some time. 

S&P 500 Index	-0.58%
Consumer Discretionary (XLY)	-0.77%
Consumer Staples (XLP)	-0.15%
Energy (XLE)	+0.82%
Financials (XLF)	+0.00%
Health Care (XLV)	+0.11%
Industrials (XLI)	-0.99%
Materials (XLB)	-0.19%
Real Estate (XLRE)	-0.09%
Technology (XLK)	-1.56%
Utilities (XLU)	-0.61%

Leadership Void

Wall Street jumped on the notion financials, led by big banks, could provide leadership; but, that theory has been a bust thus far.  Although, I have to say risk-reward for large banks like Goldman (GS) and JP Morgan (JPM) is very attractive, but they cannot support the entire market.  The influence of banks and energy has declined significantly since the Great Recession.

S&P 500 Sector Weighting	2007	2018
Information Technology	15.9%	24.5%
Health Care	12.4%	13.6%
Consumer Discretionary	8.2%	13.1%
Financials	18.1%	14.8%
Energy	12.7%	5.8%

Of course, this tech wreck, while long in the offing, might be just a blimp, and maybe investors should be considering this dip a gift, as they have been for years with many of these names.

As I mentioned on yesterday’s note, the NASDAQ 100, which is a purer reflection of big tech then the NASDAQ top holdings, are Big Tech other than Netflix. 

•             14.1% AAPL

•             11.3% MSFT

•             7.2% FB

•             5.2% GOOG & • 5.2% GOOGL

The NASDAQ 100 has held above its 50-day moving average and must make a stand here, because the 200-day moving average is a long way down.  Apple post its results today after the bell, so we will have a better idea on tech.  If you’ve missed Google (GOOGL-GOOG), Amazon (AMZN) and Microsoft (MSFT), I think they are getting near Buy points. But, key support points must hold.

 

Today’s Session

The market is looking at another tepid start to the session as investors continue to digest earnings results and wait for Apple’s results after the close.  This morning, we got another strong read from the industrial sector and are reminded why consumer staples have been such laggards.

Key Reports This Morning

Cummins Engine (CMI)

Revenue $6.1 billion +21% to all-time quarterly record

North America sales +22%

• Components +36%
• Power +30%

International +18%

The company is on track to record yearly records on sales, earnings and cash flow driven by the mining and oil sector demand and heavy-duty engine growth.

Proctor & Gamble (PG)

Revenue $16.50 billion +2.6%

The company suffered from a lack of pricing power across most product segments resulting in a decline in gross margin to 45.3% from 48.4%.

Beauty segment was lone bright spot with revenue +10% and income +37% from a year ago.

Economic Data

Very impressive economic data released this morning shows strongest compensation gains in more than a decade and is a reminder that the consumer is confident and spending money.   We’ll have greater detail on the afternoon note. 

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