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GE Stock Is Flying. Investors Should Be Careful. -- Barrons.com GE Stock Is Flying. Investors Should Be Careful. -- Barrons.com by Al Root Dow Jones This stock market is wild, and it's been wild for longer than just Thursday's massive move. Cyclical stocks have been on fire in the fourth quarter. The rally in many beaten-up names, unfortunately, looks like it doesn't have much further to run. Everything is up on Thursday. Almost everything. About 30 stocks in the S&P 500 are down, mainly more-stable consumer staples such as Hershey (ticker: HSY). Inflation data did it. The Consumer Price Index rose 7.7% year over year. Economist predicted a 7.9% rise. The 7.7% rise is slower than the recent peak increase of 9.1% in June and the 8.2% rise in September. Lower than expected inflation might mean the Federal Reserve can ease off on interest rates hikes. That realization has sent the S&P 500 is up about 4.7% and the Nasdaq Composite up about 6.3% in midday trading Thursday. That's great news for cyclical stocks. And consumer-discretionary stocks in the S&P 500, which includes auto makers, are up 7.3% on Thursday on average. Industrial stocks in the S&P 500 are up 3.5% on average. Big moves, but Thursday is part of a larger trend. Consumer-discretionary stocks and industrial stocks in the S&P 500 are up an impressive 17% on average to start the quarter. The most beaten up names, naturally, are rallying the most. Boeing (BA) stock is up about 47% quarter to date. XPO Logistics (XPO), Caterpillar (CAT), auto parts maker Aptiv (APTV) and General Electric ( GE) shares have all rallied between 37% and 42%. General Motors (GM) and Ford Motor (F) shares are both up about 25% since the end of September. That group of stocks came into the quarter off almost 40% year to date through September, compared with the average consumer-discretionary and industrial stock which was off about 30%. That group of seven was also hammered coming into the end of the third quarter, falling an average of 18% in September compared with the average 10% decline for the average cyclical stock. A relief rally is the best explanation for the recent jump. Fundamental factors don't seem to be looking all that much better. "While it always feels good to see markets rally, we think this morning's rally is bordering on silly," wrote Daniel Berkowitz, senior investment officer for investment manager Prudent Management Associates, in a Thursday note. "The market is reacting as if this is the continuance of a multiple-month, downward trend in inflation, and it is not." Inflation and the related direction or interest rates are two fundamental factors to watch. So are earnings. Take the group of seven. They have all reported third-quarter earnings. Earnings were OK for most, but nothing to justify the big fourth-quarter moves. What's more, analyst estimates for 2023 have dropped for six of the seven companies over the past month. Only estimates for Caterpillar are higher for the coming year. With fundamentals not appearing to be getting better yet, investors can look to trading charts for a little help. Cyclical stocks were pretty beaten up coming into the fourth quarter -- oversold is a term traders use. It means a lot of bad news was reflected in stocks -- prices had come down far and fast. Industrials were due for a rally, but now the sector looks overbought. Overbought means traders and investors have gotten a little too optimistic. The recent rally could run out of steam. Consumer-discretionary stocks are a little behind the industrial stocks. They were oversold to start the quarter but aren't overbought yet. Those stocks look like they will run into resistance after they go up another 5% to 10%. Charts, of course, never tell the whole story. They tell a part of it though. The charts are saying beware after Thursday's huge move. |
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