The Select Investor Monthly Commentary August 4, 2000
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July - June - July Rally
While the June part if this year's June - July Rally was not
typical, the July part was almost textbook. Modest gains
early in the month, a sharp spike up in mid-month, followed
by a sustained, sharp decline after the deadline for new
pension fund contributions ( July 15th ).
This pattern led to exactly the kind of sector rotation that
we expected. Technologies led the way up until July 17th,
then led the way down. On the way down money flowed,
predictably, out of technologies and into other sectors
primarily financials.
Financials should continue to lead in August, as long as
investors believe that the Fed will not raise interest rates
again on August 22th.
4 Week
Top Five Select Funds Total Annualized Relative
Return to S&P
Insurance 10.3 % 134 % NA
Air Transportation 8.57 % 111 % NA
Brokerage & Investment 8.01 % 104 % NA
Financial Services 6.26 % 81.4 % NA
Transportation 6.16 % 80.1 % NA
S & P 500 - 2.39 % - 31.1 % 100%
July 31, 2000
August - Apathy and Fear
There are two emotions that will define trading in August :
apathy and fear.
Now that earnings season is over, there will be no real
reason to buy much of anything ( except financials, the
August Fed meeting will move finacials ).
During the Dog Days of August, most investors and many
analysts go on vacation, leaving a directionless, apathetic
market that will drift sideways or down.
If the markets drift down too far, fear will take over and
many investors will dump their ( tech ) stocks, but most
investors will still be gone, so there will be very few
buyers to support prices and this can lead to a traditional
August collapse.
We would not be surprised to see a collapse in technologies,
while other sectors mostly drift.
The good news is that an August collapse usually leads to a
September recovery.
Conclusion
Summer Rally? Not in technologies.
Financials and one or two other sectors may continue to do
well in August, but the broader markets will probably trend
sideways or down into September.
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