The third quarter of 2019 is in the books, and at first glance, it looks unremarkable.
The S&P 500 and Dow Jones industrial average were up 1.2% and the Nasdaq was nearly flat with a loss of 0.09%. That sounds benign, but there was some dramatic action under the surface, as a massive rotation occurred.
There were two notable characteristics of the market action this quarter. First was the flat action in the indexes, despite some significant news flow. A big rotation, a Fed rate cut, an impeachment inquiry, a surge in oil following an attack, and signs of a slowing economy failed to produce any significant movement in the indexes.
What helped the bulls more than anything else was the market's inclination to rally on any positive comment about progress on China trade. Although much of the news seemed insignificant and even dead wrong, it triggered buy programs and prevented the bears from gaining any traction.
The other notable aspect of the action this quarter was the rotation that took place. It hit hard on Sept. 9, when cloud and software stocks were dumped and it spilled over to other groups like biotechnology and even FAANG names.
This sudden shift out of stocks with aggressive valuations did severe damage to many recent initial public offerings, and caused the cancellation of several others. Stocks like Peloton (PTON) and Smile Direct Club (SDC) never came close to their initial offering price once they began to trade.
Some of the most beaten up IPOs, software and cloud names bounced nicely Monday, which was likely a function of some portfolio adjustments by funds, but most of these charts are not healthy and are unlikely to recover too quickly.
It has been a tough trading environment for a while and particularly difficult for stock pickers. There has been limited leadership and a few pockets of momentum.
There is a high risk of negative headlines in the near term, but earnings season starts in a couple of weeks and that should help some of the stocks that have been unfairly punished by the rotational action.
Have a good evening. I'll see you tomorrow.