Scott MartindaleBy Scott Martindale
President, Sabrient Systems LLC

As expected, August brought more volatility. Early in the month, the large cap, mid cap, and small cap indices all set new all-time closing highs while the CBOE Volatility Index (VIX) hit an all-time low. But then tough resistance levels failed to yield, the expected late-summer volatility set in, and support levels were tested. Nevertheless, the intra-month swoon (3% on the S&P 500) turned into a buying opportunity for the bulls, and by month-end the S&P 500 managed to eke out a small gain, giving it five straight positive months. Then the market started the month of September with a particularly strong day to put those all-time highs once again within spittin’ distance…that is, until North Korea detonated a hydrogen bomb in its testing area, while massive hurricanes created havoc. But by this past Friday, bulls had recovered key support levels.

One can only wonder how strong our global economy would be if it weren’t for all the tin-pot dictators, jihadis, and cyberhackers that make us divert so much of our resources and attention. Nevertheless, prospects for the balance of 2H2017 still look good, even though solid economics and earnings reports have been countered by government dysfunction, catastrophic storms, escalating global dangers, and plenty of pessimistic talk about market conditions, valuations, and credit bubbles. Thus, while equities continue to meander higher on the backs of some mega-cap Tech sector darlings and cautious optimism among some investors, Treasuries are also rising (and yields falling) to levels not seen since before the election in a flight to safety among other investors.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review Sabrient’s weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas. In summary, although September historically has been the weakest month of the year, our sector rankings still look moderately bullish, while the sector rotation model has managed to maintain its bullish bias, and overall the climate still seems favorable for risk assets like equities. Read on.... Read more about Sector Detector: Stock bulls shake off worries about mounting global dangers

Byron MacleodBy Byron Macleod, CFA
Associate Director of Research, Gradient Analytics LLC (a Sabrient Systems company)

Given that Gradient Analytics’ research is primarily focused on forensic accounting, this common client question falls into our sweet spot. However, the link between earnings quality concerns and share price underperformance can be difficult to assess for two reasons:

   1.  Investors and sell-side analysts tend to focus their attention on the income statement, but there is not always a predictable correlation between the highlighted balance sheet trends and the income statement impact.
   2.  Because management has a huge amount of discretion over how accounting entries are handled (including when to recognize built-up expenses, impairments, non-cash gains, etc.), earnings quality concerns often have ambiguous timing.

Thus, investors often are left wondering just how and when eroding earnings quality in their portfolio holdings – whether long or short – will ultimately impact their fund’s performance.

Nevertheless, to illustrate how such red flags may indeed lead to notable share price decline, I will describe three real-life examples. For compliance reasons, I won’t disclose their names, but will simply refer to them as Company A, B, and C. Read on.... Read more about “How will earnings quality issues impact the company’s share price?"