After a strong start, U.S. stocks limped toward the finish line this week. The broader market averages fell fractionally and posted the first consecutive weekly losses in three months. The retail sector was the big loser this week, as Macy's (M) and others posted lower profit outlooks.
We used the sell off this week to add to our position in Kratos Defense & Security (KTOS). Despite the small loss in the broader market, two other names in the model portfolio made sizable moves. CECO Environmental (CECE) gained 22% this week, while Unilife (UNIS) lost 38%.
U.S. stocks are approaching oversold levels for the first time in over a month. We're comfortable holding an above-average 25% cash position in the model portfolio and continue to search for new names for both the model portfolio and bullpen. One name we did some work on this week is Sequential Brands (SQBG), which bought former model portfolio holding, Martha Stewart Living Omnimedia, last year.
Earnings season is largely behind us now. According to S&P Global, aggregate S&P 500 earnings are down 6% quarter-to-date, which is the third straight decline and the worst since 2009. Revenue is also expected to drop 2.1% in the first quarter, which is the fifth consecutive decline.
Looking ahead to next week, we expect trading volatility to continue, as we approach monthly options expiration. On the economic front, we'll get several looks at the state of the housing market. In addition, we'll see consumer prices on Tuesday the minutes of the latest FOMC meeting on Wednesday.
Speaking of the FOMC, Fed funds futures are currently pricing in just an 8% chance of an interest rate hike at the June meeting. The odds jump to 61% that we'll see an interest rate increase before the end of the year.
