Scott Martindaleby Scott Martindale
President, Sabrient Systems LLC

From the standpoint of the performance of the broad market indexes, US stocks held up okay over the past four weeks, including a good portion of a volatile June. However, all was not well for cyclicals, emerging markets (including China), and valuation-driven active selection in general, including Sabrient’s GARP (growth at reasonable price) portfolios. Top-scoring cyclical sectors in our models like Financial, Industrial, and Materials took a hit, while defensive sectors (and dividend-paying “bond proxies”) Utilities, Real Estate, Consumer Staples, and Telecom showed relative strength. According to BofA’s Savita Subramanian, “June was a setback for what might have been a record year for active managers.” The culprit? Macro worries in a dreaded news-driven trading environment, given escalating trade tensions, increasing protectionism, diverging monetary policy among central banks, and a strong dollar. But let’s not throw in the towel on active selection just yet. At the end of the day, stock prices are driven by interest rates and earnings, and both remain favorable for higher equity prices and fundamentals-based stock-picking.

Some investors transitioned from a “fear of missing out” at the beginning of the year to a worry that things are now “as good as it gets” … and that it might be all downhill from here. Many bearish commentators expound on how we are in the latter stages of the economic cycle while the bull market in stocks has become “long in the tooth.” But in spite of it all, little has changed with the fundamentally strong outlook underlying our bottom-up quant model, characterized by synchronized global economic growth (albeit a little lower than previously expected), strong US corporate earnings, modest inflation, low global real interest rates, a stable global banking system, and of course historic fiscal stimulus in the US (tax cuts and deregulation), with the US displaying relative favorability for investments. Sabrient’s fundamentals-based GARP model still suggests solid tailwinds for cyclicals, and indeed the start of this week showed some strong comebacks in several of our top picks – not surprising given their lower valuations, e.g., forward P/E and PEG (P/E to EPS growth ratio).

Looking ahead, expectations are high for a big-league 2Q18 earnings reporting season. But the impressive 20% year-over-year EPS growth rate for the S&P 500 is already baked into expectations, so investor focus will be on forward guidance and how much the trade rhetoric will impact corporate investment plans, including capex and hiring. I still don’t think the trade wars will escalate sufficiently to derail the broad economic growth trajectory; there is just too much pain that China and the EU would have to endure at a time when they are both seeking to deleverage without stunting growth. So, we will soon see what the corporate chieftains decide to do, hopefully creating the virtuous circle of supply begetting demand begetting more supply, and so on. Furthermore, the compelling valuations on the underappreciated market segments may be simply too juicy to pass up – unless you believe there’s an imminent recession coming. For my money, I still prefer the good ol’ USA for investing, and I think there is sufficient domestic and global demand for both US fixed income and equities, especially small caps.

In this periodic update, I provide a market commentary, offer my technical analysis of the S&P 500, review Sabrient’s latest fundamentals-based SectorCast rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. In summary, our sector rankings still look bullish, while the sector rotation model has returned to a bullish posture as investors position for a robust Q2 earnings season. Read on.... Read more about Sector Detector: Q2 earnings season brings anticipation of bullish breakout

After a brief pullback to retest support levels, it appears that bulls may be preparing to take the market higher. Although retail investors are still hesitant, risk-taking among institutions is apparent. Cheap cash from abundant global liquidity is hungry for higher returns. Margin debt is high. Credit spreads are low. Subprime loans are back in vogue. Small caps and the banking sector in particular look ready to resume a leadership role. Read more about Sector Detector: Bulls may be getting ready to push stocks higher

Scott MartindaleWas that really a breakout? With the S&P 500 struggling around the 2,000 level for the past two weeks, Friday’s strong finish might seem like a bullish breakout. But the market has already given us a couple of false breakouts at this level, and although I see higher prices ahead, I’m still not convinced that we have seen all the near-term downside that Mr. Read more about Sector Detector: Stock market breakout? Not so fast

Gradient Senior Analyst Nicholas Yee reports on six companies that are using a variety of techniques to shift pretax profits to lower-tax areas. Featured in this USA Today, article, the companies include CELG, ALTR, VMW, NVDA, LRCX, and SNPS. Read more Read more about 6 Companies Push Tax Rules Most

sandra / Tag: CELG, ALTR, VMW, NVDA, LRCX, SNPS. / 0 Comments

david trainerFor U.S. equities, ETFs offer a higher percentage (10%) of attractive investment options than mutual funds (1%) at a lower cost. The radically higher number of US equity mutual funds (4,700+) versus ETFs (380+) is not indicative of better stock selection from active management. On the contrary, the vast majority of actively-managed funds do not justify the higher fees they charge. Read more about ETF vs Mutual Funds: The Winner Is…

dtrainer / Tag: AIG, ALV, AVB, BAC, C, CME, COF, COP, CPB, CVX, DELL, DISH, Do, DVN, EP, EQR, FCX, FRX, GE, GILD, GIS, GPS, INTC, JPM, LLY, LRCX, MSFT, NEM, NLY, PXD, T, TXN, UNH, VNO, WFC, WMT, XOM / 0 Comments

david trainerMost of my research and publishing tends to focus on companies manipulating accounting rules to make their reported earnings look better than the real economic cash flows of their business.

It is unfortunately rare that I find a company whose economic earnings are outpacing the reported accounting results and whose stock is cheap.

dtrainer / Tag: LRCX, QTEC, USD / 0 Comments

The Market Gives Back . . .

By David Brown, Chief Market Strategist, Sabrient Systems Read more about The Market Gives Back . . .

david / Tag: AA, C, CPA, CPX, GOOG, JPM, LRCX, RBN / 0 Comments