BEHIND THE MONEY: Sorry Tim Geithner & Ken Lewis, We're Taking Our Bags and Leaving
One week does not make a trend, but the price action would seem to suggest that the parts of the market away from financials are ready to signal that a bottoming of economic activity is somewhere on the horizon.
And it's no coincidence that it's coming just before the week when we will finally get some clarity on President Obama's bank rescue plan and economic stimulus. Wall Streeters may not love the finer print of both plans, but at least this will mean that Washington is finally out of the way and Ken Lewis' words no longer hold sway over the whole market.
The biggest winner of the week is tech with the Technology SPDR(XLK) up 8 percent and counting. Pete Najarian, co-founder of OptionMonster.com says this is not just a wholesale rotation into the sector, but investors finally recognizing that top perfomers such as Cisco, Apple and Google are using this recession to only get stronger and steal more share. Cisco led the way this week even after they said sales this quarter may slip by as much as 20 percent.
The Materials SPDR (XLB) is up 7 percent, led by stocks such as Freeport-McMoran . "Commodity producers have been quick to remove supply from the market," says Tim Seymour of Seygem Asset Management. "Combine that with some impending tangible US stimulus and here we are."
The Consumer Discretionary SPDR (XLY) is up a healthy 4 percent despite dismal January sales figures releases this week. "Retail expectations are now so low, if you have cash or a strong balance sheet" then the market may start to reward you, says Karen Finerman, President of Metropolitan Capital Advisors. Finerman owns American Eagle, which she says is trading for just 6X earnings when you back out cash. That is its lowest valuation ever, she notes.
The market doesn't need financials to rally, it just needs them to remain stable, which is hopefully what we get from the big plans next week. In 1980, financial stocks made up 5 percent of the stock market, according to Standard & Poor's. Ten years later, the sector still only made up 7.2 percent of the total market capitalization of the S&P 500. Goodbye banks. We don't need you.
PROGRAMMING NOTE: The Corning CFO is on FM tonight and we'll ask him to validate the premise that slipping demand has at least stabilized. Corning makes the LCD glass for Flat-panels so have a unique window into when the demand cycle for technology may turn.
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