Scott Martindaleby Scott Martindale
President, Sabrient Systems LLC

Stocks are rocketing to new highs almost every day. Jeff Bezos of Amazon.com (AMZN) saw his net worth exceed $100 billion. Bonds are still strong (and interest rates low). Real estate pricing is robust. DaVinci painting sells for $450 million. Bitcoin – having no intrinsic value other than a frenzy of speculative demand – trades above $11,000 (up from $1,000 on January 1), with surprising enthusiasm brewing among institutional investors, including some of the wealthiest and most successful, and with futures and derivatives on cryptocurrencies in the pipeline. (By the way, if you are afraid of a global internet crash disrupting your holdings, fear not, as there is a bitcoin satellite accessible by dish.)

Investors are desperately seeking the next hot area before it gets bid up. (Maybe marijuana stocks are next, in anticipation of broader legalization.) Indeed, central bank monetary policies have created significant asset inflation, with cheap money from around the globe burning a hole in investors’ pockets. So now it’s high time to invite to the party some of the huddled masses (who don’t have direct access to the Fed’s largesse) – through fiscal stimulus. We are already getting some of that in the form of regulatory reform, which the Administration has largely done on its own. But the eagerly anticipated big-hitter is tax reform, which requires the cooperation of Congress. And despite the Republicans’ inability to come to consensus on anything else, investors are already bidding up equities in anticipation of the House and Senate reconciling a tax bill that becomes law – so expect to see a big correction if it fails.

The promise of regulatory and tax reform have kept me positive all year on mid and small caps as the primary beneficiaries, and I remain so now more than ever. In addition, they offer a way to better leverage continued economic expansion and rising equity prices, particularly those that supply (or that seek to take away a small piece of a growing pie from) the dominant mega caps. Moreover, as the valuations for the mega-cap Technology names in particular grow ever more elevated, we are starting to see a passing of the baton to smaller players and other market segments that display more attractive forward valuation multiples.

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 latest fundamentals-based SectorCast rankings of the ten US business sectors, and offer up some actionable ETF trading ideas. In summary, our sector rankings still look bullish, while the sector rotation model also maintains its bullish bias. A steady and improving global growth outlook and a persistently low interest rate environment continues to foster low volatility and an appetite for risk assets. Read on.... Read more about Sector Detector: All systems are (almost) go into year-end, with tax reform the final missing piece