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Tech stocks continued to lead the U.S. market higher Monday. Apple (AAPL), meanwhile, showed potential of recouping some of the nearly 9% decline suffered over the prior two weeks and continuing its solid uptrend since its January breakout past an early-stage cup-with-handle base at 118.12.
The stock rebounded 4.12, or 2.9%, to 146.39 in volume that edged 2% above normal levels. Apple is also up 26% since Jan. 1, more than double the 9.5% gain for the S&P 500. Both the 500 (up 0.8%) and the Dow Jones industrials (up 0.7%) hit all-time new highs in the stock market today.
But at the market’s close at 4 p.m. ET, the Nasdaq composite reaffirmed its market leadership, stretching its gain to 1.4% and holding practically at session highs, and extending its year-to-date gain to 15.9%.
Small caps lagged, as the S&P SmallCap 600 rose just 0.5%.
In the Dow 30 industrials, as many as nine members are up one point or more, including top-tier banks JPMorgan Chase (JPM) and Goldman Sachs (GS). Reuters reported an estimate by a Morgan Stanley analyst that the main banks have as much as $150 billion in idle cash that could be funneled toward future dividend hikes and share buybacks.
The Federal Reserve is set to release initial results on Thursday of a two-part annual stress test of major Wall Street banks. The stress test, created in the wake of the 2008-2009 subprime debt debacle, offers investors the central U.S. bank’s view of how the nation’s biggest lenders would handle a future economic or financial shock that could rattle the banking system.
IBD analyzes the market action based on the movement of 197 industry groups and subgroups each day. Among the top 10 performers on Monday, six six hailed from the medical, computer and electronics sectors, including biotechs, generic drugs, integrated computer systems, computer networking and fabless semiconductors. You can check the individual stocks and ratings for all of these industry groups by going to MarketSmith, IBD’s premium stock screening and charting service.
Integrated oil, water utility, oil drilling and gas distribution companies led the market’s downside, falling 0.9% or more. WTI crude oil futures slid 1.2% to $44.20 a barrel, while NYMEX natural gas futures collapsed more than 4% to $2.89 per 1 million BTUs, a new 3-month low. The Dow utility average slipped 0.4%. Long-term interest rates edged up, with the yield on the 10-year U.S. Treasury benchmark bond rising to 2.19%.
Market breadth is positive, with winners beating losers by a nearly 9-5 ratio on the Nasdaq and an 18-11 ratio on the NYSE. Volume was down sharply on the main exchanges vs. the same time Friday. Stock and index options expired Friday, resulting in higher volume.
This column last week noted that Apple posted a pair of sell signals for short-term investors: 1) dropping sharply below its 10-week moving average in accelerating volume; and 2) giving back all of its gains from a four-weeks-tight entry at 141.12. But the iPhone maker could also have been held by longtime holders who have a big enough profit cushion to give the stock a chance to rise back above the 10-week line or possibly test the longer-term 40-week moving average, roughly equivalent to the 200-day moving average on a daily chart.
Apple is now less than three points away from retaking the 10-week line.
Another fellow tech component in the Dow 30, Microsoft (MSFT) is holding up firmly since it broke out of a base-on-base setup at 58.80 in the week ended Oct. 21, 2016. The Xbox and business software firm, up 1% to 70.87, has gained nearly 24% since that October breakout. The S&P 500 has risen 14% over the same time frame.
Both Apple and Microsoft pay dividends, and the annualized yields are 1.8% and 2.2%, respectively. The S&P 500 has a 1.91% yield. Microsoft’s long-term cash payout growth is 15% each year, according to calculations by William O’Neil + Co.
An ongoing rebound in fundamentals for both Apple and Microsoft, plus the outperformance of the tech sector in 2017 so far, are two reasons why the two megacap names have good prospects for beating the S&P 500’s return this year.
Among the top five sectors in IBD’s daily ranking of 33 broad sectors, three of the top five are from tech land: Electronics (No. 1), Chips (No. 2), and Computer (No. 4). The other two in the top five are Leisure (No. 3) and Building (No. 5).
IBD’s TAKE: Apple, due to the majority of its revenue now coming from the iPhone, is part of the Telecom sector, which is now ranked No. 14 out of 33 broad industry sectors. A strong sector performance often helps a growth stock achieve above-average returns. See the entire list of sectors, ranked daily, via the Stock Lists section at Investors.com.
As seen in IBD Stock Checkup, Microsoft ranks No. 3 within the desktop software industry group in terms of its 82 Composite Rating. It trails group leader Adobe Systems (ADBE) (96 Composite) and Red Hat (RHT) (92). However, Microsoft has successfully turned around its recent slump in revenue with gains of 1% and 8% vs. year-ago levels in the prior two quarters. Microsoft had suffered a six-quarter drought of flat or falling sales.
Microsoft also sports a top-notch A rating for SMR (Sales + Profit Margins + Return on equity).
Elsewhere in the stock market today, MasTec (MTZ) rallied more than 2% to 45.60 in quiet trade. Read more about the base this building and maintenance services firm is forming in IBD’s Stocks Near A Buy Zone feature, available in the Stock Lists section at Investors.com.
Broadcom (AVGO) rallied more than 2% to 241.15 in slightly above-average turnover; the top-quality semiconductor stock is once again extended a little more than 5% past a 227.85 flat-base entry.
As noted in the latest IBD Weekly print edition, last week’s negative reversal in heavy volume marked a sell signal following the chip equipment firm’s outstanding run.
Yet for now, the stock is getting vital buying support at the 50-day moving average, a key trait among leading growth stocks.
Lam is No. 5 in the IBD 50. The Street expects earnings to rise 57% to $9.88 a share in fiscal 2017 ending in June; but growth is expected to slow to 10% in FY 2018. Keep in mind, however, that Lam has beaten the consensus profit estimate by nearly 6% on average over the past four quarters.
Some consumer spending plays are also thriving; please check IBD Weekly in pages B1 to B4 and see the chart analysis for every minichart of the IBD 50. From April 11, 2003 to Dec. 31, 2016, the total return of the IBD 50 is 750%, vs. a 242% gain for the S&P 500 (excluding dividends).