By: John Kosar of Street Authority
All major U.S. indices closed higher for the fourth consecutive week, this time led by the small-cap Russell 2000, which was up 1.2%. Year to date, however, the Russell has by far been the weakest, up just 0.9%. This puts the burden for continued broad market leadership squarely on the other traditional market leader -- technology.
The tech-heavy Nasdaq 100 has been up to the challenge so far, posting a 13.7% gain year to date, and is a major reason why the SP 500 is up 8.4% in 2014. But with small caps already weak, if and when technology stocks stop leading, the overall market is likely to run into some serious problems.
My own metric, which is based on ETF asset flows, shows that the largest inflow of sector-related investor assets last week was into defensive utilities and out of industrials. Accordingly, last week's strongest sector was utilities, up 2%, with industrials the only sector to finish the week in negative territory.
Be Aware Of September Seasonal Weakness
As we move into September, a good place to begin this week's report is with monthly seasonality. The chart shows that September is the seasonally weakest month of the year in the SP 500 since 1957. On average, it closed 0.68% lower for the month and posted a negative monthly close 54% of the time.
This is one of several good reasons to pay particularly close attention to your stock market investments this month, and to have a defensive plan already in place in case this 56-year seasonal pattern emerges again this year.
We should also note the historical tendency for a strong fourth-quarter rebound, so even if the market does correct this month, we should be looking for near-term weakness to potentially provide better intermediate-term buying opportunities. Continue reading "The Most Important Stock To Watch This Month Is..."