The market reacted in a meaningful way last week to the political drama coming from the White House, suffering the biggest one day drop in eight months, setting the market on edge. However, now that a special prosecutor has been named who has subpoena power, rumors should subside since he has THE power to go to the rumor source (think insider trading). By Friday, the market gained back almost all of the selloff, ending down 0.32%.
The support line for the S&P 500 from a technical perspective looks like 2320. However keep in mind that the S&P 500 has been in a consolidation period for the last 6 months bouncing between the 2200 and 2400 range. The market low in November at election time, was 2082.
The Russell 2000 (small-cap index) has also churned sideways all year, posting only a 0.75% gain.
This week our ETF Quickview (see report) registers Money Market on a relative basis at 39, with U.S Large-Cap, Technology and International Developed equities leading the pack. The field of leadership is narrowing, particularly in the U.S. which can be a sign of a market top when only a few stocks are rising to lift the entire S&P 500 index. Institutional managers are looking for better valuations on foreign shores; developed international and emerging markets in particular.
Although the short-term and intermediate-term trends are neutral, the long-term trends stay positive, as investors continue to bank that pro-growth policies coming from Washington still have a probability of coming to fruition.
Still, the most recent drop serves as a wake-up call that if pro-growth policies are impeded, investors are willing to take profits and ask questions later. All the more reason to have a defensive strategy.