Apple (NASDAQ:AAPL) and biotech have been the S&P 500’s leaders for years, so that's what you should be keeping an eye on. The recent weakness in Apple—or maybe better said the under-performance of Apple—matters. With the strong rally we had last week, last Friday's jobs report, with its market reversal, and the fact that Apple can't muster any upside is important.
Readers will hopefully not forget that Apple is 15% of the market cap of the PowerShares QQQ Trust Series 1 (NASDAQ:QQQ), and represents 6% of the earnings weight of the S&P 500 and 4% of its market cap. Apple is of ENORMOUS importance to the S&P 500, and it is now lagging.
Here is my late March ’15 post on Apple.
From a portfolio management standpoint, I’ve been buying the Direxion NASDAQ-100 Equal Weighted Shares ETF (NYSE:QQQE) for client accounts. I do like the Nasdaq 100 from a risk / reward and valuation perspective, and with the QQQE, I don’t get the 15% AAPL weighting as with the QQQ. I’m still long QQQ and still long Apple, but I’m preparing for the day that this stock inevitably fizzles, particularly for taxable clients that don’t like big taxable gains.
Within healthcare, biotech’s under-performance yesterday (Monday, October 5th, with Dow 30 +300) was even more notable than Apple.
Here is a spreadsheet noting Healthcare’s historical earnings and revenue growth, over the last few years: FCSP500revgro(qtrly).
Another reason Healthcare was weak Monday, was the passing of the TPP (or Trans Pacific Partnership), which according to The Hill, a Beltway newsletter which provides daily updates:
” Trade officials from 12 countries agreed Monday to shrink the length of time that pharmaceutical companies can receive monopoly rights for certain drugs, a provision that is already threatening to incite a Big pharma rebellion on Capitol Hill…Brand-name companies would receive up to eight years of monopoly rights for drugs known as biologics — a decrease from the current 12 years provided under U.S. law, according to officials involved. The final language of the deal has not yet been released.”
That is a direct quote from The Hill, and along with likely Democratic nominee Clinton’s comments, Valeant Pharmaceuticals' (NYSE:VRX) drama and such, maybe earnings will give the sector some needed relief.
Analysis / conclusion: This post from late September ’15 doesn’t look so bad. This rally is all about the “reversion to the mean” trade. The former leaders are now lagging, while the “Dash to Trash” has been remarkable.
More Energy and Emerging Markets are owned today than probably at any time in the last 3 years, and it has all been bought for clients in the last two weeks. The dollar and Energy begin to lap their respective strength and weakness in the next two quarters. (Here is the article that triggered an interest in buying the EEM and VWO, Brazil isn’t yet owned but the sentiment around EMs today is as bad as in the late 1990s.)
The key levels the S&P 500 needs to trade above are the 8/28 high of 1,993, the 50-day moving average at roughly 2,000 on the S&P 500, and given the proximity, I’d like to see the S&P 500 trade back above its 200 day moving average near 2,050. As technicians would say, this represents a lot of overhead.
The all-time high for the S&P 500 was 2,134.71 on May 20, ’15.
Biotech was never a big position within client accounts, thus we missed out on that upside for years. Amgen (NASDAQ:AMGN) is owned but even though it is labeled a biotech, it has the fundamental metrics and valuation of a large-cap pharma. The largest healthcare position for clients is Pfizer (NYSE:PFE).
Within a few weeks the true “market” will show itself. Will the former leaders resume their leadership position or has the landscape permanently changed, and the laggards gotten game?
inquiring minds want to know.