U.S. Largecap Sector Relative Fair Values: Thursday, June 2, 2016

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Significant Changes Since Last Week:

Over the last week the market has moved 72 points to 17,789 representing a decline of less than ½ %. The market is continuing to move sideways in reaction to a mix of positive economic news, mixed corporate earnings data and global changes such as the possible British exit from the EU.  Four sectors remain above 100% FV, Consumer Staples, Industrials, Telecommunication Services and Utilities. All of the sectors are now above 90% FV with Utilities being the star at 108.3% FV. This grouping is encouraging as no single sector appears to be at an extreme either side.

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The Largecap market (IVV) has remained very stable at 95.5% FV and the Smallcap market (IJR) has also remained close to fair value at 100.4% FV. Much of the relative valuation activity centers around the Midcap market which has extended upward reaching 104.8% FV.

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The difference between the capitalization segments of the domestic market can be seen graphically in the sector dissection tables on the first page. In the Largecap arena Utilities and Telecom are well above fair value while Health Care, Consumer Staples and Financials are catching up. Utilities are above fair value in all three market capitalization segments but, after that it is a mixed bag. In the midcap area there are seven sectors above fair value with only three under that mark. In the Smallcap segment it is more balanced with six above and four below, and not to the same degree as in the Midcap segment. This is why the Allcap industry analysis can add value it attempting to determine the overall status of the market.

U.S. Allcap Industry Relative Fair Values

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The big change in the Industry grouping was in Pharmaceuticals & Biotechnology which advanced a full 4 percentage points in the week to 95.9% FV. There were three other industry groups that advanced more than two percentage points in the week: Media, Retailing, Semiconductors and Software & Services. Software reached 96.2% FV after a struggle earlier in the year. There are 11 industry groups tilted above 100% FV and nine industry groups leaning into the under 100% FV side. All but one industry group is above 90% FV and that is Transportation at 89.2% FV. This group has wrestled with the reduction of material carried across the country as a decrease in energy exploration.