Stocks Are Topping Out

Market Summary

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After a sluggish start to the year, stocks rebounded sharply in February. The S&P 500 ended February with a gain of 5.5 percent, its best month since October 2011, while the Nasdaq rose 7.1 percent, its best monthly performance since January 2012. The strong gains have pushed the Nasdaq within striking distance of the 5,000 mark and record highs set in March 2000. The Dow rose 5.6 percent in the month, its best monthly performance since January 2013. Volume was again low. About 6.5 billion shares changed hands on U.S. exchanges, below the 6.8 billion average for the month, according to BATS Global Markets. Gold stocks moved back up as investors debate when interest rate will rise following Fed Chairwomen Janet Yellen’s congressional testimony this past week. All the major stock indexes remain in the black for the year.

                                                   

Investment Analysis

As the earning season winds down, continuing to invest in the leading companies in the sectors that stand to benefit most from the improving domestic economy is a good move. As displayed below in the S&P sector graph, over the past month Cyclicals, Technology and Materials sectors are the leading groups. These are the primary sectors that should continue to do well during the recovery phase of a cyclical economy. As the U.S. economic recovery continues, stocks of the top companies in these cyclical sectors can be expected to outperform. Conversely, Utilities have converted from the top-performing sector to the worst. Safe-haven utility stocks have lost their luster as investors bet on whether the U.S. Federal Reserve will raise interest rates later this year.

By Gregory Clay

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