During the first full trading week of the second half of the year, the stock market continued to exhibit volatility, mostly in the day-to-day rotation between big cap/tech on one side and small cap/ financials/cycles on the other. One day the former group leads, and the next day the latter group leads. For the week ending 7/10, the S&P 500 was up three days and down two, ultimately closing the week with a gain just shy of 2%, primarily occurring from a Friday afternoon rebound into the close. Bonds were up fractionally on the week, and QQQ was up 4.7% as technology continues to lead the market higher.
We are quickly approaching Q2 earnings season, with many financials reporting this week. We anticipate continued lack of forward earnings guidance from reporting companies due to the lack of future earnings visibility from the pandemic. What could likely drive the market may be based on whether companies surprise or disappoint based on analyst expectations.
We really need financials to show up this quarter if we want the market to stay at the current levels, or even advance further. Should banks and financials disappoint, we could very well see some near-term downside risk to the market. On the other hand, if big tech surprises to the upside, which we think they may, the market should respond positively. The weeks ahead will be very telling.
Last week we trimmed approximately 10% of USMV, but otherwise re remain close to our target equity ranges. In the conservative model, we increased allocations to QQQ from 8% to 10%. We are within 1% of breaking even for the year, amazing if you consider how much the market was down at the end of the first quarter.
We will be taking a few weeks off writing our weekly notes as David is taking a much-deserved vacation with his family. Feel free to reach out should you have any questions or concerns.
