When you‘re hot you’re hot and when you’re not…
Reflecting on the first half of the year we see the Nasdaq and the Russell 2000 are the clear index leaders while the Dow Jones Industrial Average and S&P 500 are clear laggards. Both the Nasdaq and Russell 2000 have been outperforming since the February 2016 lows. A notable Dow headline in the second quarter was the removal of GE from the index. GE had been a member of index for over 100 years but its impact on the Dow has been diminishing. The Dow is a price weighted index, meaning higher priced stocks carry more significance than lower priced stocks. At $13 per share, a 10% change in GE’s stock price would only move the Dow by about 9 points, an insignificant value for an index priced above 24,000. Walgreens Boots Alliance (symbol: WBA) will fill GE’s void.
G&S Perspective: Three of the S&P 500’s key sectors – Cyclicals, Technology and Energy – are supporting the broad market while many sectors – Industrials, Financials, Materials and Consumer Staples – have been trending lower. Technology accounts for about 23% of the S&P 500 Index. Buying in financials, or any of the other lagging sectors, would be a welcome sign for the markets and help to increase our optimism for the balance of the year. For this to happen investors may want to see clarity in the ongoing geopolitical issues facing international trade, global economic growth, and the strong U.S. Dollar – which are currently hindering the performance of multinational companies.