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High Momentum Stocks Remain Volatile

Market Digest – Week Ending 4/4

What looked like a solid week for stock returns evaporated on Friday as selling pressure resumed on high momentum names. Price declines spread from Technology and Biotech stocks into the broader market, but the S&P held on to a modest gain for the week. International and Emerging Markets outperformed for a second straight week. The US economy added 192,000 jobs in March, just shy of expectations. Bonds rose on the news but were relatively flat for the week.

Weekly Returns:

S&P 500: 1,865 (+0.4%)
FTSE All-World ex-US: (+1.0%)
US 10 Year Treasury Yield: 2.73% (+0.01%)
Gold: $1,303 (+0.7%)
USD/EUR: $1.370 (-0.4%)

Major Events:   

  • Monday – Russian President Putin told German Chancellor Merkel that he’d ordered a partial withdrawal of troops from Ukraine’s border, potentially reducing tension.
  • Tuesday – Following a high profile segment on 60 Minutes, the SEC said it had a number of ongoing investigations into high frequency trading.
  • Thursday – Mozilla CEO Brendan Eich stepped down amid controversy after it was revealed he donated to a 2008 California initiative to ban gay marriage.
  • Friday – The US economy added 192,000 jobs in March, just shy of expectations. Unemployment held at 6.7%.

Our Take:

Last week we highlighted increased volatility in high momentum market segments like Technology, Biotech and Small Cap. We concluded it is too soon to tell if increased selling pressure represents a blip or a signal the winds are changing. This week didn’t provide any clarity.

High momentum stocks rebounded early in the week, only to sell off sharply again on Friday. One noticeable change – Friday’s selling pressure flowed over into the broader market. To keep it in perspective, however, the S&P 500 was still up for the week.

Stocks, especially the high flyers, have gone only one direction for almost two years. It appears investors may have to stomach some additional volatility.

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