A Market Rally in Flames: Cliff Notes Continued
- Downgraded stocks have been met with harsh market reactions -- for example, in Electronic Arts (EA). Message: exuberance is still priced into valuations.
- Two interconnected sectors that had run higher neck-in-neck -- homebuilders and financials -- are now cooling for a multitude of reasons. These include financials on the eurozone news flare, as well as perceived valuation risk on homebuilders.
- Money flowing from consumer-discretionary names is being funneled into consumer staples, but not meaningfully so. Message: This is a classic lack of appetite for risk amid uncertainty. As a side note, Treasury bond yields have fallen for eight straight days.
- Market is beginning to challenge moments that had been initially cheered -- for instance, the "whatever it takes" line from European Central Bank President Mario Draghi. It feels as if the bond market will push Spain into a bailout. This is a prime example of the problems arising from stimulus; powerful words heaved into a global news cycle; and -- as it pertains to the European Union -- a fractured union.
- Pockets of intraday market reversals have not been maintained into the close.