What the Market Wants: Waiting for FOMC

The market continues to creep upward, with the short-term trend clearly positive albeit on quite low volume.  The S&P 500 remains above its 50-day and 200-day moving average, but as we head into the current week, our concern is about conviction within the marketplace.  The ECRI (Economic Cycle Research Institute) finally gave a positive uptick last week, but it would be early to conclude that we’re on a strong uptrend.

Perhaps we'll get more clarity this week as a number of economic reports are in the offing. On Tuesday, the Fed will give us its reading on where the economy is headed, with the FOMC (Federal Open Market Committee) report. We'll also get the numbers for productivity and wholesale inventory. Wednesday brings the international trade balance and Treasury budget reports; Thursday will give us export and import prices and weekly initial jobless claims; and Friday will see consumer sentiment, retail sales, and business inventories.

Tomorrow's FOMC report is probably the most important of these, and it is likely that today's relatively lifeless market is due to the wait-and-see attitude about the FOMC.

Market Stats. Last week, the larger you were the better you did.  The market favored large-cap growth, up +2.0%, while the least favored was small-cap growth, down -0.08%.  Signs of preference for growth or value were mixed with no clear favorite.

Sectors were also mixed.  Energy led last week, together with Healthcare and Materials. Consumer Staples came in dead last, which is usually a sign that investors are not fleeing to safety.  Despite a positive forward outlook score last week, Financials were next to last in sector performance, no doubt reflecting the continued concern about capital and lending capability of banks.

Click here to see the market stats.

Information Technology was also an underachiever for the week (third from bottom), most likely due to the questionable Q2 performance of IBM (IBM), Hewlett Packard (HP), Google (GOOG) and Amazon (AMZN).  Nevertheless, corporate earnings were better than virtually anyone could have expected, with most companies surprising to the upside.  Yet concern about the economy continues.

Our forward-looking sector model still places Financials in the top spot, despite its poor performance last week, with Information Technology and Healthcare in the second and third spots.  At the bottom is Consumer Discretionary, preceded by Consumer Staples and Telecommunications.

Investors should continue to shop for bargains in the top three to five sectors, close positions that are fully valued, and utilize hedging where appropriate.   (For a look at a hedged portfolio, check out the Sabrient Investor's (H)Edge Portfolio at http://www.sabrient.com/investors-hedge.php.)

4 Stock Ideas for This Market

This week, let’s revert to a more conservative stock search. I started with Sabrient’s Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com), but I also included Mid and Small Caps and slightly upweighted Technicals. Here are 4 intriguing stock ideas:

AmTrust Financial Services (Nasdaq: AFSI) – Financials
Vishay Intertechnology (NYSE: VSH) – InfoTech
LifePoint Hospitals (Nasdaq: LPNT) – Healthcare
China Yuchai (NYSE: CYD) – Industrials

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 personally 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 their personal financial 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.