Morning Market Thoughts

by DAN Good morning. Once again…we are set for a slightly weaker open. Is this a familiar theme? Open a bit lower after a string of higher closes (12 days and counting for the Dow 30),…and then ultimately close higher still. I suspect that this will happen today, with stocks trading sideways as investors wait to hear what President Trump is going to say tonight. To say he is “unorthodox” would be an understatement.

From what I have read, “the market” believes that POTUS will emphasize what he has been focusing on (No. I’m not talking about his twitter account. I doubt he’ll mention Meryl Streep, Rosie O’Donnell, or various other shiny objects). With respect to issues that impact markets, he will likely urge additional spending on defense, repealing and replacing the Affordable Care Act, cutting taxes and regulations, and probably a comment or two about rebuilding our infrastructure to the tune of $1 trillion.

My concern is that the market has already priced in these developments. The iShares DJ US Aerospace & Defense Fund ETF ($ITA) and the Health Care Sector ETF ($XLV) have run about 8.5% since the low in January. That’s a significant move for sectors that are typically not volatile. The XLV is right back to 52-week highs, and some defense stocks ($NOC & $LMT) are also at 52-week highs. Others ($HII, $BEAV, $LLL, $RTN and $HON) are hitting new highs on an almost daily basis. So the question is whether these stocks will continue to move higher, or whether there will be selling after his speech. Honestly, I have not been paying much attention to aerospace & defense. Why? Well frankly, it’s not practical to focus on every single sector in the market. You can’t be everywhere at once. I am starting to pay more attention to Health Care ($XLV) and Biotech ($XBI) because many stocks are at key buy points. See last night’s Strategy Session for more on those sectors.

The challenge in this market is to balance the importance of being invested against the tendency to chase stocks. We’ll continue to focus on maintaining that balance in the weeks to come.

Don’t forget about the live training webinar for members tomorrow at 12 pm ET (9 am PT).

See you in the forum.

–Dan

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