Mergers, Materials and Moguls in Focus: Midday Check


Markets are finally taking a breather today. Even the bulls need to rest.

The S&P 500 has risen in eight of the last nine weeks … the longer-term trend is even stronger, with only one single negative month since Donald Trump was elected U.S. president. And even that one fly in the ointment, March 2017, saw a drop of less than 0.1 percent.

A deeper look under the surface shows some encouraging signs for the bulls in today’s pullback. First, the internals. While the S&P 500 is down 0.4 percent, the worst performing sectors are interest-rate sensitive “safety plays” like utilities and real-estate investment trust. Second, interest rates are  rising as the market bets on a stronger economy. That’s generally viewed as a positive for financials, which just happen to be the best major sector today, down less than 0.1 percent.

There’s also been a pickup in merger activity. Last week it occurred in the Biotechnology space with Juno Therapeutics (JUNO) gobbled up by Celgene (CELG) and Bioverativ (BIVV) snagged by Sanofi (SNY). Today it appeared in the consumer-staples space with Doctor Pepper Snapple (DPS) and the materials space with KapStone Paper (KS).

Interestingly, those broader sectors have lagged the market over the last few years. Biotech, for instance, was pretty much dead in the water since mid-2015 but its industry-tracking ETF (IBB) is making new 52-week highs. Consumer staples have also been one of the worst major sectors in the last two years (up less than 20 percent versus the S&P 500’s 50 percent surge) as Americans cut back on packaged foods. Materials haven’t fared much better… but even they’re starting to show some life recently.

Packaging, a subset of materials has been especially strong. Aside from KS getting bought today, former blue chip International Paper (IP) has broken out to new record territory above its peaks from later last century. Industrial metals like steelmakers and copper miners are churning near three-year highs on the heels of a strong December. And in recent weeks money has trickled into firms like Vulcan Materials (VMC) and Martin Marietta (MLM) that provide sand and gravel… this group may get even more attention as Trump unveils his infrastructure plan in tomorrow night’s State of the Union speech.

Next, Wynn Resorts (WYNN) is pulling back to its 50-day moving averages after its founder was hit with accusations of improprieties. But he remains at the helm and only last week, strong quarterly results drove the casino operator to a new three-year high. Buy the scary-news pullback?

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.