Key Sectors Continue To Flash Red, Adding To Concerns About The Overall Economy

Monday’s session was like the Clint Eastwood classic The Good, the Bad and the Ugly. There was some stuff to like, but there was a lot to be concerned about as well.

The Good

Those key support points held again by the time the closing bell rang. It was another remarkable rebound for the broad market. The market has put up a heck of a fight at what is seen as a cliff into a possible abyss. There is a lot to be said for the market holding at key support points and climbing off massive losses, but we are still beginning a new session on that same cliff.

The Bad

Key sectors continue to flash red, adding to concerns about the overall economy.  

Financials

Financials are problematic. While the smartest guys in the room, those big money center bank folks are paying the price for focusing too much on trading, and not enough on banking, weaknesses are permeating through the sector.

• Money Center Banks: All seven were lower, with Wells Fargo (WFC), the biggest loser -2.9%
• Regional Banks: All four were lower, with KeyCorp, the biggest loser -4.4%
• Life Insurance: All six names got hit, with Principal Financial Group (PFG), the biggest loser -3.31%

Energy

Energy continues to be a drag as crude oil continues to plunge.  It’s hard to believe this is only about excess supply, and the inability of the Organization of the Petroleum Exporting Countries (OPEC) to get their act together. 

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• Oil & Gas Equipment: Saw six of six names lower, the biggest loser Schlumberger Limited, (SLB) -2.49%
• Independents: Saw eleven of thirteen names lower, with several absolutely crushed, including Apache Corporation (APA) -6.3%
• Refiners: All four companies saw their stocks close lower, with Valero Energy Corporation (VLO) the biggest loser -3.4%
• Majors: both Exxon Mobil (XOM) and Chevron Corporation (CVX) were lower on the session

FedEx (FDX) and United Parcel Service (UPS), which should be riding the internet delivery wave, instead led Transportation names lower after a downgrade of the former on company-specific concerns.

The Ugly

It was a great-looking rebound as the market showed a lot of moxie climbing off the canvas for a 600-point reversal before all the major indices faded but closed in positive territory. The big problem, however, was looking under the hood as there was a lot of carnage. 

Only 27 stocks, none of which you have ever heard of, reached new 52-week highs during the session, against 1078 hitting new lows, including names in your direct portfolio or funds in your 401K.

Summation

Even if the market stages a rebound here, the initial stage of such a bounce will be in momentum names that are able to attract individual investors and professional investor funds. So many of the same names that triggered the sell-off have to lead the bounce, but that still means there are a lot of great stocks treading water and changing hands at very deep discounts.

Current WSS Portfolio Approach Portfolio Distribution

We added a defense contractor yesterday. The group began to make a big move on reports of defense spending in the next White House bill. The price has been right for some time, but the action triggered urgency. 

Today’s Session

News on trade negotiations between the United States and China are moving the needle this morning.  Apparently, a call with key negotiators from both sides reportedly went well and was followed up with reports China is prepared to lower tariffs on cars imported from the United States.  This news corroborates a tweet from President Trump that was dismissed by many market watchers and observers.

Its looks like the tariffs will be lowered to 15% from 40%.

Economic news out from China continues to point to a sharp economic slowdown. Car sales declined for the fifth straight month -13.9% in November, making this the steepest decline since 2012 (timing of lunar New Year).

China auto sales are poised for their first annual decline since 1990.

US Economic Slowdown?

Slow growth has been a theme around the world all year long and more recently it has been the big question about the US economy. 

This morning the NFIB released their latest gauge on small business optimism.  The decline to 104.8 from 107.4 was well below consensus of 107.3.

The biggest declines are telling:

• Expect economy to improve -11%
• Expect real sales higher –4%
• Overall, small business optimism is still elevated and holding above its post 2016 election surge.

Thing to Understand

There is a lot to be concerned about with respect of the economy, but investors should know the worst-case scenario being built in the market should mitigate downside and create big upside opportunities.