Market Firming Up

The broad market firmed up this week as oil moved above $33 and earnings season brought a number of positive results. Facebook (FB) and Microsoft (MSFT) gave investors reason to stay long those stocks, while Under Armour (UA) showed that there’s still growth in apparel.

Bellweather stocks Honeywell (HON), 3M (MMM) and Caterpillar (CAT) reported results that suggested those stocks are cheap at current levels.

But there were a few disappointments too, most notably Amazon (AMZN) and Electronic Arts (EA), that are trading down early this morning. With the Fed sitting pat for now, and Q4 U.S. GDP coming in at 0.7% (0.8% was expected so this is just a little light), earnings season and oil are likely to continue to drive the market’s direction over the coming weeks.

Large caps were up 1.3% over the past week while small caps were up 1.4%. Value outperformed growth in both. The bounce in oil gave energy stocks a rare leadership position for the week, while utility stocks came in second, suggesting that on balance, investors remain cautious.

Technology, industrials and consumer stocks all delivered modest gains this week. But health care was a laggard and the biotech blues continue with decent results from Biogen (BIIB) failing to overpower disappointments from Celgene (CELG) and Incyte (INCY). Biotech has been especially pummeled in 2016, with the iShares Biotech ETF (IBB) down 22% year-to-date. There will be a point at which biotech is a screaming buy, and based on valuation, large caps looks close, but the trend is undeniably down. Individual names must have something very special going for them to justify new investment right now.

Tyler Laundon is Chief Analyst of Cabot Small-Cap Confidential. To read subscriber reviews of Cabot Small-Cap Confidential, click here.

This is an excerpt from Cabot Small-Cap Confidential, which features little-known stocks with big potential. It offers a limited number of subscribers the opportunity to discover overlooked, low-priced stocks that have the potential to skyrocket. This advisory is best suited to experienced investors who embrace volatility.

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