What the Market Wants: Market Opens New Year with a Bang
It seems that we needed only to take a week off to get this market going. Our last issue was barely published when the market broke through the 1100 heavy resistance it had faced for nearly two months. The S&P 500 closed today (Monday) at 1133, up a solid 3% since two weeks ago. Small-cap Growth led the cap/styles this past week, up +1.66% while Large-cap Value was the worst at +0.32%.
The news fueling the market, while not sensational, has been steadily positive. My favorite was the ISM last week, a full point above consensus at 55.9 and 2.5 points above its previous reading. Consumer confidence, while just meeting expectations at 52.9 last week, was well above the previous reading of 49.5. Best of all, I suppose, was last week’s initial jobless claims of 432,000, which was the lowest level in some time and well below the expected 460,000 and the previous reading of 452,000. PMI was also positive while construction spending and retail sales were just okay. No real disappointments here.
Last night the overseas markets were solidly up across the board, and today the dollar is down sharply, which is certainly helping commodity prices.
Sectors. From a sector viewpoint, the past week was good to Materials and Technology, which led the group, with Materials continuing to be fueled by a weak dollar. Healthcare did the worst, held down by the still unfinished business of the great health care reform. Financials claimed the next-to-worst spot as fears persist about commercial real estate and overall bank liquidity.
Click here to see the Market Stats.
The Past Year. It’s appropriate today that we take a quick glance at the year just ended. Mid-caps led all of our cap/styles in 2009, up 37.7% for the year. Small-cap Growth was up 33%; Large-cap Growth was up a little over 34%; and the venerable S&P 500 up more than 22%. So while we wrestled with demons much of the year – think unemployment and financial infrastructure – the worst expectations for both were averted and both were steadily improving at year-end, albeit slowly. Despite the great gains of the last few days, I doubt that we’re completely out of the woods yet with respect to our recent economic crisis, but we’re much better than we were in March.
Regardless of the negative underpinnings, we made much progress in 2009, and I expect to see at least a continued slow recovery in 2010. To be sure, there are pockets of overvaluation caused by the market’s bullish run since last April, so the prudent investor will continue to look carefully at valuation and cash flow, especially in sectors that are expected to lead the recovery. Based on Sabrient’s forward-looking SectorCast model, those would be Telecom, Consumer Staples and Healthcare, while Consumer Discretionary, Materials and Technology are expected to lag. However, I have to caution you that as long as the dollar stays weak while the global economy continues to make progress, Materials will likely do just fine.
4 Stock Ideas for This Market
This week, I ran our proprietary MyStockFinder stock search tool (http://MyStockFinder.com) starting with the Small Wonders pre-set search. However, I included both small and mid-caps, up-weighted Growth, Fundamentals, Balance Sheet, and Earnings Quality, and asked for a bit of Insider Buying and Analyst Revisions. I also requested higher beta stocks that tend to rise & fall more than the overall market. It produced a lot of intriguing stock ideas (you should try it yourself). It was tough to it narrow down, but here are a few diverse picks that I like:
Jinpan International (NYSE: JST) – Industrials (Capital Goods)
Ares Capital Corporation (Nasdaq: ARCC) – Financials (Specialty Finance) – (Big yield)
FBL Financial Group (NYSE: FFG) – Financials (Insurance)
Patriot Coal Corporation (NYSE: PCX) – Energy (Coal)
Until next week,
David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research
http://www.sabrient.com
and http://Twitter.com/ScottMartindale
Full disclosure: The author does not hold any of the stocks mentioned in this week’s
“Stock Ideas.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.