By Scott Martindale
President, Sabrient Systems LLC

On Tuesday, March 21, the S&P 500 had its first 1%+ down-day of the year, and its first truly significant downward move in five months, falling -1.3% for the day, while the Russell 2000 small caps fell by an ominous -2.7%. For the S&P, it was the culmination of a -2.2% move over a 4-day period before stabilizing for a few days. But for the Dow, Monday of this week was its eighth straight losing day for the first time – its longest losing streak since 2011. The consensus bogeyman of course is the elusive passage of a new healthcare reconciliation bill and the fear that this exposes chinks in President’s Trump’s armor that may foreshadow delays in all his other fiscal stimulus proposals that have been so widely anticipated, and largely priced in. But I suggest focusing on the fundamental economic trends that are still solidly in place and not jump to conclusions about the future of external stimuli, some of which should enjoy broader bipartisan support. Maybe this is why the VIX has held defiantly below the important 15.0 level.

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. Overall, our sector rankings still look bullish, and the sector rotation model continues to suggest a bullish stance. Read on....

By Scott Martindale
President, Sabrient Systems LLC

Proving to be a better magician than either David Blaine or Criss Angel, Donald Trump pulled a giant rabbit out his hat with his improbable victory to become President-elect of the United States. But even those few prescient souls who predicted a Trump victory couldn’t foresee the immediate market rally. Everyone thought that the market preferred (and had priced in) a Clinton victory. But they were wrong. Small caps in particular have been on a tear.

I said in my previous article on 10/31 that I expected the Russell 2000 small caps to resume their outperformance once the election results had a chance to shake out. Going forward, I expect a greater focus on positive fundamentals to permeate investors’ psyche, leading once again to healthier market breadth, diverse leadership, and higher prices. I expect Trump’s policies, along with a mostly cooperative Republican-controlled Congress, to be mildly inflationary and favorable for business investment and earnings growth, with certain market segments that had been targeted by the Democrats now set to strengthen. This already has become a positive for Sabrient’s fundamentals-based portfolios.

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 neutral as adjustments to sell-side forward estimates based on the election are only starting to trickle into our model (even though investors haven’t waited around for them), but the sector rotation model now suggests a bullish stance. Read on....

By Scott Martindale
President, Sabrient Systems LLC

It is encouraging to see that Q3 earnings season is looking a bit better than expected and is on track to produce positive earnings growth for the first time since Q1 2015 (that was six straight quarters of negative year-over-year growth!) – and on positive revenue growth, to boot. Entering earnings season, Wall Street’s mood had turned negative after an expectation earlier in the year that Q3 would be the big turnaround quarter, so the upside surprises so far have been most welcome.

On the other hand, stocks appear to be enduring something of a “stealth correction” or risk-off activity, which has been impacting small caps much more than the larges. After seven months of expansion (essentially from Feb 11 until Sept 22), market breadth has been shrinking over the past month, as news headlines take the stage away from fundamentals, which is not surprising given the impending election. I think we will see elevated volatility in advance of election day, but after rationalizing what it all means (no matter what result transpires), I expect the market to stabilize – at least until the December 14 FOMC meeting. From a technical standpoint, the proverbial spring remains tightly coiled for a significant move. But even if the initial move is down, I would consider it a buying opportunity, as I think investors will return to a focus on fundamentals, leading once again to healthier market breadth and diverse leadership, with higher prices in our future.

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 on....

Q2 is well underway for the economy, while Q1 corporate earnings reporting season kicks into high gear this week. Although investors have pretty much written off the quarter as a stinker, they are eagerly anticipating forward guidance for the back half of the year. With the major indexes and underlying valuations sitting at lofty heights, investors are evidently pricing in improving fundamentals ahead, particularly here at home in the U.S.

Stocks were able to leverage some optimistic news and dovish words from the Fed to take another stab at an upside breakout attempt last week. Although readers have sometimes accused me of being a permabull, I am really a realist, and the reality is that the slogans like “The trend is your friend” and “Don’t fight the Fed” are truisms. And they have worked.