Is a rotation occurring in the markets? At casual glance it appears some are taking profits in the companies that have performed best during the first six months of the year and buying the laggards from that same period.
Bloomberg writes the biggest gainer thus far in July has been energy, which was the first half of the year’s biggest loser. The Newswire further states “valuations are extremely stretched across some over owned sectors, suggesting substantial underperformance during the next six months.”
Commenting about yesterday’s $22 billion of the 30-year Treasury Bond auction, demand was strong perhaps the result of the “cheapening” that had occurred in the prior week. Long dated Treasury prices were largely unchanged.
Next week is the official commencement of second quarter earnings season as several large money center banks post results. How are the tariffs impacting profitability and margins?
San Francisco Fed President Mary Daly validated views that not only are companies absorbing the cost of tariffs but also the individual country and other entities involved in the distribution process. Costs have yet to be passed onto the end user fearing a loss of market share. Daly made one comment that this may impact margins but no further remarks were given.
This potentially a dangerous scenario with the markets at “stretched valuations” concentrated in a handful of names that are exhibiting manic levels ownership.
Also released next week are various inflation indicators including the CPI, PPI, import/export prices as well as retail sales.
How will the markets interpret the data?
Last night the foreign markets were down. London was down 0.42%, Paris down 0.80% and Frankfurt down 0.79%. China was up 0.01%, Japan down 0.19% and Hang Seng up 0.46%.
Futures are down about 0.6% on trade concerns. The 10-year is down 16/32 to yield 4.39%.
