foxex: Investors Unwilling to Commit after Fed Announcement

Thursday, September 19, 2019

Investors Unwilling to Commit after Fed Announcement

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Thursday, September 19, 2019

1. Despite Rate Cuts, Investors Nervous about Buying More Stocks

2. Homebuilding Sector Remains Strong

3. Cannabis Stocks Burning Out as Investors Shun Risk

Market Moves

For the second day in a row the broader indexes of the U.S. stock market remained largely unchanged by the close of the session. Even though the Fed announced a quarter-point rate cut yesterday, investors were unwilling to accept this information as a sign that it is time to buy more stocks. This appears particularly poignant as prices return to their former highs, as if they were hitting some unseen level of resistance at current prices.

With prices so far stalling out at previous highs, the S&P 500 index has failed to extend its growth streak this year. In fact, at the current time the utility sector is notably outperforming the large cap index. The idea that investors are showing a preference for low-volatility, dividend heavy stocks typically means investors are nervous about the prospects for growth among typical blue-chip stocks.

Homebuilding Sector Remains Strong

Despite market rate cuts, Middle East uncertainty, and mixed news regarding housing starts and new permits, the homebuilder sector is flush with stocks that are generally on the rise. A daily chart of the SPDR® S&P® Homebuilders ETF (XHB), shown in the chart below, reveals that this fund has bested the S&P 500 handily in 2019. This chart likely obscures how well a few of the individual stocks may be doing among those stocks represented within the sector ETF.

Homebuilding Stocks Crushing S&P 500 on Rate Cuts Amid Warnings

Canopy Growth Facing Giant Losses

Cannabis Stocks Burning Out as Investors Shun Risk

Cannabis Growth Corp. (CGC) and other stocks in the sector have seen a dramatic fall from their peak prices earlier this year. Like many companies in the sector, the company finds itself overcapitalized without sufficient fundamental growth to warrant greater growth expectations. As a result Horizons Marijuana Life Sciences ETF (HMMJ) has given up all of its gains and is currently showing zero return for the 2019 calendar year to date.

The Bottom Line

U.S. stocks and other asset classes remained largely unchanged despite the Fed announcement yesterday. Investors appear to be avoiding any more risk and showing a preference for lower-volatility investments such as utility stocks. One exception to this is homebuilding stocks which are doing quite well. An example of risk aversion right now is the trend of cannabis stocks, which are decidedly down from their high this year.

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