Trump's Cannabis Update Boosts Otherwise Weak Stock Market
Rotational action didn't save the market this time after more poor news in the AI group.
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On Thursday, the market handled Oracle's (ORCL) disappointing earnings report quite well. While there was pressure on some technology and AI stocks, money rotated into the DJIA and the Russell 2000, and breadth was positive.
On Friday, the market received more bad news in the AI sector when chip supplier Broadcom (AVGO) offered weak guidance and said there is pressure on profit margins. Oracle caused some consternation again when Bloomberg reported that it was pushing back the timeline for some data centers, but the report was denied.
Unfortunately, the poor action on Friday did not produce the same robust rotations that occurred on Thursday. Money flowed into the retail sector, and fast-food stocks were particularly strong. One notable area of strength was cannabis stocks after President Trump indicated he would issue some executive orders to address the long-running drama over legalization.
With small caps a bit extended, they were ripe for some profit-taking. The Russell 2000 pulled back about 1.6% and only about 33% of stocks managed gains. It was index-driven action with broad selling where individual merit didn't matter much.
While it was an uncomfortable action if you are holding the stocks that have been the best performers recently, it is probably very healthy technically. The action was a bit frothy, with high levels of speculation in secondary stocks.
The market will be in better shape for sustained upside to end the year if there is some fear and skepticism. The best rallies tend to climb a wall of worry, and after the dovish Federal Reserve address, there wasn't much to worry about. I'm not particularly concerned about topping action and view this poor action as just usual, healthy volatility as investors seek new leadership.
The good news is that these pullbacks, while painful, do create some interesting opportunities that weren't there on Thursday night. I'll refine my shopping list and will report back next week.
Have a great weekend. Get that Christmas shopping done, and I'll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
