By Scott Martindale
President, Sabrient Systems LLC

As Q3 came to a close, investors continued to show cautious optimism and the S&P 500 posted a gain for the fourth straight quarter. After a lengthy period of time in which markets were buffeted by the daily news about oil prices, jobs reports, Fed rate hike intentions, China growth, Brexit, US economic expansion/contraction, Zika virus, and ISIS inspired attacks, the focus has switched back to improving fundamentals.

In particular, as Q3 earnings reporting season gets started, there remains a broad expectation that the corporate “earnings recession” has bottomed and that companies will start showing better earnings growth (hopefully driven by revenue growth), particularly in the beaten-down market segments like Energy and Materials. I think the only thing holding back stocks right now is investor uncertainty about market reaction to two things: a potential Trump presidential victory and to the next Fed rate hike (expected on December 14). From a technical standpoint, the spring is coiling tightly for big move.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas. Overall, our sector rankings look relatively bullish, although the sector rotation model still suggests a neutral stance. Read more about Sector Detector: Stocks coil as Q3 earnings take the stage and election campaigns heat up

By Scott Martindale
President, Sabrient Systems LLC

On Wednesday afternoon, the Fed came through to fulfill what was widely expected – no change to the discount rate just yet. But it did pump up its hawkish language a bit. The FOMC never wants to surprise the markets, so given that it had not telegraphed a rate hike, it simply wasn’t going to happen. Looking forward, however, given that the committee sees the balance of economic risks at an equilibrium, a hike in December looks like a slam-dunk unless something changes dramatically. Beyond that, they are essentially telegraphing two rate hikes next year, as well. The upshot is that investors were happy and dutifully responded with a strong rally across many asset classes to finish off the day.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas.

Read more about Sector Detector: Volatility returns as anticipation builds about Fed actions and elections

By Scott Martindale
President, Sabrient Systems LLC

Overall, it appears that the stock market continues to focus more on improving fundamentals than on the daily news. We continue to see improved market breadth, low volatility, lower sector correlations, and capital flows into higher quality companies with solid fundamentals, attractive valuations, good earnings quality, and strong market position. Small and mid-caps have been leading market segments, especially those from the Energy sector. Among large caps, Technology and Financial sectors have been strong during Q3, while defensive sectors Utilities and Telecom have pulled back across all market caps after showing inordinate strength for much of the year (although they still remain strong YTD).

All of this is bullish – and is illustrative of the healthy broadening of the market. Although some traders appear to be taking some chips off the table in deference to September’s notoriety as the worst performing month of the year, I think the path of least resistance for stocks is to the upside.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas. Read more about Sector Detector: Healthcare struggles under election campaign attacks, while Tech, Financial, and Small Caps lead an overall bullish market

I haven’t written in a few weeks. That can be a lot of time for the latest news to impact the character and direction of the market, right? So, what has changed since my last article? Well, not much, really. It seems the market isn’t quite so news-driven these days; instead it has been focusing on fundamentals and the overall improvement in prospects for the economy and corporate earnings. And these things are driving it ever higher. Read more about Sector Detector: Stocks methodically march ever higher as breadth continues to improve

The market broke out to the upside, as I predicted it would -- although the breakout came a good bit sooner than I anticipated. My expectation was that stocks would remain within their long-standing trading range until a clear upside catalyst emerged, such as improving Q2 earnings reports and forward guidance. But investors aren’t waiting around. Clearly, they are positioning in advance of the emergence of such catalysts. For now, fear of missing liftoff is stronger than fear of getting caught in a selloff. Read more about Sector Detector: Stocks break out as investors place their bets on endless monetary stimulus

In a year in which stock prices mostly have been driven by news rather than fundamentals, three things stood out last week. First, terrorism has taken on an unsettling new face -- the stay-at-home mom down the street or your long-time co-worker at the plant -- as the dark side of the exponential growth in social media rears its ugly head (with something much more sinister than porn sites or online bullying). Second, with the strong jobs report on Friday, the Federal Reserve seems to have all their ducks in a row to justify the first fed funds rate hike in nine years. Read more about Sector Detector: Sector rotation model stays bullish, although fundamental rankings are still stuck in neutral

Some weeks when I write this article there is little new to talk about from the prior week. It’s always the Fed, global QE, China growth, election chatter, oil prices, etc. And then there are times like this in which there is so much happening that I don’t know where to start. Of course, the biggest market-moving news came the weekend before last when Paris was put face-to-face with the depths of human depravity and savagery. And yet the stock market responded with its best week of the year. Read more about Sector Detector: Bulls wrest back control of market direction, despite global adversity

November got off to a strong start early last week, and the rally broadened to include financial and retail stocks. But after a torrid six weeks of bullish behavior while ignoring (or perhaps reveling in) concerns about the global economy during, U.S. stocks encountered some strong technical resistance in the middle of last week, and it has continued into Monday. The Dow Jones Transportation Index continues to a drag on the overall market, and this segment will need to gather some enthusiasm if the broader indexes are to resume their advance. Read more about Sector Detector: Bullish conviction kicks into gear, as the stars align for holiday cheer

Last week, the S&P 500 put up its best week of the year, closing above key psychological levels and breaking through bearish technical resistance, with bulls largely inspired by the dovish FOMC meeting minutes. But this year’s market has been news-driven and quite difficult for traders to read. Even our fundamentals-based and quality-oriented quant models have struggled to perform. Read more about Sector Detector: Bulls rally, but bears lurk

The Fed’s decision to not raise the fed funds rate at this time was ultimately taken by the market as a no-confidence vote on our economic health, which just added to the fear and uncertainty that was already present. Rather than cheering the decision, market participants took the initial euphoric rally as a selling opportunity, and the proverbial wall of worry grew a bit higher. Read more about Sector Detector: No rate hike translates into heightened wall of worry

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