by Scott Martindale
  President & CEO, Sabrient Systems LLC

Stocks are once again challenging all-time highs as the forward earnings estimates are being raised at an historically high rate in the wake of another impressive earnings season that blew away all consensus expectations. YTD through May, index total returns were strong across the board, including +12.7% for S&P 500, +6.6% for Nasdaq 100 (as mega-cap growth endured the brunt of the Value rotation), and +15.2% for Russell 2000 small caps. The strong earnings reports have given rise to further upgrades to forward sales and earnings from a highly cautious analyst community, many of whom are still concerned about COVID variants, supply chains, inflation, and Fed tapering, among many other worries.

Nevertheless, share prices have not gone up as fast as earnings, so valuations have receded a bit, with the S&P 500 falling from a forward P/E of 21.8x at the start of the year to 21.2x at the end of May (i.e., -2.8% versus a total return of +12.7%). Cyclicals in particular have seen this same trend, since they were largely bid up on speculation. For example, Energy (XLE) is up +39.2% YTD, but its forward P/E has fallen from 29.2x to 17.2x (-28.4%). With plenty of cash on the sidelines, many investors likely are holding back and hoping for a solid pullback rather than deploy cash at what may still appear to be elevated valuations and stretched technicals, as they move past a speculative investing mindset and into a more fundamentals and quality-oriented stage. While more speculative asset classes like SPACs and cryptocurrencies already have endured a pretty severe correction (driven by negative press or tweets from influential personalities), stocks really haven’t yet seen a healthy cleansing.

When the April YOY CPI reading came out on 5/12 at a surprisingly high +4.2%, stocks were expected to selloff hard, led by mega-cap growth stocks. But instead, they quickly gathered conviction and resumed their march higher. Small-cap value (which is dominated by cyclical sectors like Financial, Industrial, Materials, and Consumer Discretionary) in particular remains quite strong this year as the Value rotation continues in the face of an expansionary/recovery economic phase, unabated government support and largesse, and a continued productivity boom. And with GDP growth accelerating, particularly as the economy fully reopens and hobbled global supply chains are mended or rerouted, it is likely that the Street’s forward earnings estimates (even after the recent upgrades) are still too low, which means stocks should have more room to run without relying upon multiple expansion, in my view.

So, two questions seem to linger on everyone’s mind: 1) how might inflationary pressures impact economic growth and the stock market, and 2) are stock valuations overdone and at risk of a major correction? I tackle these questions in today’s post. In short, I believe earnings momentum should win out over overblown inflation worries and multiple contraction as we embark upon a multi-year boom (a “Roaring ‘20s” redux?) – but not without bouts of volatility.

With no clear path for runaway inflation and given the recent rotation out of the Growth factor, investors now seem to be adding exposure to both secular and cyclical growth – which is what my regular readers know I have been suggesting and what Sabrient’s GARP portfolios reflect (including our flagship Baker’s Dozen). As a reminder, you can go to http://bakersdozen.sabrient.com/bakers-dozen-marketing-materials to find my latest presentation slide deck and market commentary (which includes an update on the Q2 2020 Baker’s Dozen portfolio and an overview of the latest Q2 2021 Baker’s Dozen).

In this periodic update, I provide a comprehensive market commentary, offer my technical analysis of the S&P 500 chart, review Sabrient’s latest fundamentals based SectorCast quant rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. To summarize, our sector rankings reflect a solidly bullish bias, the technical picture is still long-term bullish (although in need of further near-term consolidation), and our sector rotation model retains its bullish posture. Read on….

  by Scott Martindale
  President & CEO, Sabrient Systems LLC

By some measures, the month of November was the best month for global stock markets in over 20 years, and the rally has carried on into December. Here in the US, the S&P 500 (SPY) gained +12.2% since the end of October through Friday’s close, while the SPDR S&P 400 MidCap (MDY) rose +18.1% and the SPDR S&P 600 SmallCap (SLY) +24.3%. In fact, November was the biggest month ever for small caps. Notably, the Dow broke through the magic 30,000 level with conviction and is now testing it as support. But more importantly in my view, we have seen a significant and sustained risk-on market rotation in what some have termed the “reopening trade,” led by small caps, the value factor, and cyclical sectors. Moreover, equal-weight indexes have outperformed over the same timeframe (10/30/20-12/11/20), illustrating improving market breadth. For example, the Invesco S&P 500 Equal Weight (RSP) was up +16.9% and the Invesco S&P 600 SmallCap Equal Weight (EWSC) an impressive +29.5%.

As the populace says good riddance to 2020, it is evident that emergency approval of COVID-19 vaccines (which were developed incredibly fast through Operation Warp Speed) and an end to a rancorous election cycle that seems to have resulted in a divided federal government (i.e., gridlocked, which markets historically seem to like) has goosed optimism about the economy and reignited “animal spirits” – as has President-elect Biden’s plan to nominate the ultra-dovish former Federal Reserve Chairperson Janet Yellen for Treasury Secretary. Interestingly, according to the WSJ, the combination of a Democratic president, Republican Senate, and Democratic House has not occurred since 1886 (we will know if it sticks after the Georgia runoff). Nevertheless, if anyone thinks our government might soon come to its collective senses regarding the short-term benefits but long-term damage of ZIRP, QE, and Modern Monetary Theory, they should think again. The only glitch right now is the impasse in Congress about the details inside the next stimulus package. And there is one more significant boost that investors expect from Biden, and that is a reduction in the tariffs and trade conflict with China that wreaked so much havoc on investor sentiment towards small caps, value, and cyclicals. I talk more about that below.

Going forward, absent another exogenous shock, I think the reopening trade is sustainable and the historic imbalances in Value/Growth and Small/Large performance ratios will continue to gradually revert and market leadership broadens, which is good for the long-term health of the market. The reined-in economy with its pent-up demand is ready to bust the gates, bolstered by virtually unlimited global liquidity and massive pro-cyclical fiscal and monetary stimulus here at home (with no end in sight), as well as low interest rates (aided by the Fed’s de facto yield curve control), low tax rates, rising inflation (but likely below central bank targets), and the innovation, disruption, and productivity gains of rapidly advancing technologies. And although the major cap-weighted indexes (led by mega-cap Tech names) have already largely priced this in, there is reason to believe that earnings estimates are on the low side for 2021 and stocks have more room to run to the upside. Moreover, I expect active selection, strategic beta ETFs, and equal weighting will outperform.

On that note, Sabrient has been pitching to some prominent ETF issuers a variety of rules-based, strategic-beta indexes based on various combinations of our seven core quantitative models, along with compelling backtest simulations. If you would like more information, please feel free to send me an email.

As a reminder, we enhanced our growth-at-a-reasonable-price (aka GARP) quantitative model just about 12 months ago (starting with the December 2019 Baker’s Dozen), and so our newer Baker’s Dozen portfolios reflect better balance between secular and cyclical growth and across large/mid/small market caps, with markedly improved performance relative to the benchmark S&P 500, even with this year’s continued market bifurcation between Growth/Value factors and Large/Small caps. But at the same time, they are also positioned for increased market breadth as well as an ongoing rotation to value, cyclicals, and small caps. So, in my humble opinion, this provides solid justification for an investor to take a fresh look at Sabrient’s portfolios today.

In this periodic update, I provide a comprehensive market commentary, offer my technical analysis of the S&P 500 chart, review Sabrient’s latest fundamentals-based SectorCast quant rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. To summarize, our outlook is bullish (although not without bouts of volatility), the sector rankings reflect a moderately bullish bias (as the corporate outlook is gaining visibility), the technical picture looks solid, and our sector rotation model is in a bullish posture. In other words, we believe “the stars are aligned” for additional upside in the US stock market – as well as in emerging markets and alternatives (including hard assets, gold, and cryptocurrencies).

As a reminder, you can go to http://bakersdozen.sabrient.com/bakers-dozen-marketing-materials to find my latest Baker’s Dozen presentation slide deck and commentary on terminating portfolios. Read on….

  by Scott Martindale
  President & CEO, Sabrient Systems LLC

Optimism reigns for the pandemic slowing and the economy reopening. And because stocks tend to be several months forward looking (and remarkably predictive, at that), April saw the best single-month performance for the S&P 500 in 33 years (+12.7%), while the Nasdaq saw its best month in 20 years (+15.4%). The S&P 500 Growth Index recorded its highest ever monthly return (+14.3%). In addition, gold and bitcoin have been rising as a hedge against all sorts of outcomes, including geopolitical instability, trade wars, de-globalization, unfettered monetary & fiscal liquidity (i.e., MMT), inflation, a weakening dollar, a “toppy” bond market, etc. (plus the periodic bitcoin “halving” event that occurs this week).

This impressive rally off the lows seems justified for several reasons:

1. the coronavirus, as bad as it is, falling well short of the dire lethality predictions of the early models and our ability to “flatten the curve”
2. massive monetary and fiscal policy support and the associated reduction in credit risk
3. low interest rates driving retirees and other income seekers into the higher yields and returns of stocks
4. household income holding up relatively well, as the main impact has been on lower wage workers who can’t work remotely (and government support should cover much of their losses)
5. escalation of tensions with China seems to be “all hat and no cattle” for now, with a focus on economic recovery
6. massive short covering and a bullish reversal among algorithmic traders
7. the growing dominance and consistent performance of the secular-growth Technology sector plus other “near-Tech” names (like Facebook and Amazon.com)
8. the steepening yield curve, as capital has gradually rotated out of the “bond bubble”

What the rally doesn’t have at the moment, however, is a strong near-term fundamental or valuation-based foundation. But although the current forward P/E of the S&P 500 of 20x might be overvalued based on historical valuations, I think in today’s unprecedented climate there actually is room for further multiple expansion before earnings begin to catch up, as investors position for a post-lockdown recovery.

In any case, it has been clear to us at Sabrient that the market has developed a “new normal,” which actually began in mid-2015 when the populist movement gained steam and the Fed announced a desire to begin tightening monetary policy. Investors suddenly become wary of traditional “risk-on” market segments like small-mid caps, value stocks, cyclical sectors, and emerging markets, even though the economic outlook was still strong, instead preferring to focus on mega-cap Technology, long-term secular growth industries, and “bond proxy” dividend-paying defensive sectors. And more recently, investor sentiment coming out of the COVID-19 selloff seems to be more about speculative optimism of a better future rather than near-term earnings reports and attractive valuation multiples.

In response, Sabrient has enhanced our forward-looking and valuation-oriented Baker’s Dozen strategy to improve all-weather performance and reduce relative volatility versus the benchmark S&P 500, as well as put secular-growth companies (which often display higher valuations) on more equal footing with cyclical-growth firms (which tend to display lower valuations). Those secular growth trends include 5G, Internet of Things (IoT), e-commerce, cloud computing, AI/ML, robotics, clean energy, blockchain, quantum computing, nanotechnology, genomics, and precision medicine. So, we felt it was necessary that our stock selection strategy give due consideration to players in these market segments, as well.

As a reminder, you can find my latest Baker’s Dozen slide deck and commentary on terminating portfolios at http://bakersdozen.sabrient.com/bakers-dozen-marketing-materials.

In this periodic update, I provide a market commentary, discuss Sabrient’s new process enhancements, offer my technical analysis of the S&P 500, and 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 now look defensive, and our sector rotation model maintains a neutral posture as it climbs from the depths of the selloff. Meanwhile, the technical picture remains bullish as it continues to gather speculative conviction on a better future, although with elevated volatility amid progress/setbacks as the economy tries to gradually reopen in the face of an ongoing coronavirus threat.  Read on....

  by Scott Martindale
  President & CEO, Sabrient Systems LLC

  As the New Year gets underway, stocks have continued their impressive march higher. Comparing the start of this year to the start of 2019 reveals some big contrasts. Last January, the market had just started to recover from a nasty 4Q18 selloff of about 20% (a 3-month bear market?), but this time stocks have essentially gone straight up since early October. Last January, we were still in the midst of nasty trade wars with rising tariffs, but now we have a “Phase 1” deal signed with China and the USMCA deal with Mexico and Canada has passed both houses of Congress. At the beginning of last year, the Fed had just softened its hawkish rhetoric on raising rates to being "patient and flexible" and nixing the “autopilot” unwinding of its balance sheet (and in fact we saw three rate cuts), while today the Fed has settled into a neutral stance on rates for the foreseeable future and is expanding its balance sheet once again (to shore up the repo market and finance federal deficit spending (but don’t call it QE, they say!). Last year began in the midst of the longest government shutdown in US history (35 days, 12/22/18–1/25/19), but this year’s budget easily breezed through Congress. And finally, last year began with clear signs of a global slowdown (particularly in manufacturing), ultimately leading to three straight quarters of YOY US earnings contraction (and likely Q4, as well), but today the expectation is that the slowdown has bottomed and there is no recession in sight.

As a result, 2019 started with the S&P 500 displaying a forward P/E ratio of 14.5x, while this year began with a forward P/E of 18.5x – which also happens to be what it was at the start of 2018, when optimism reigned following passage of the tax cuts but before the China trade war got nasty. So, while 2018 endured largely unwarranted P/E contraction that was more reflective of rising interest rates and an impending recession, 2019 enjoyed P/E expansion that essentially accounted for the index’s entire performance (+31% total return). Today, the forward P/E for the S&P 500 is about one full standard deviation above its long-term average, but the price/free cash flow ratio actually is right at its long-term average. Moreover, I think the elevated forward P/E is largely justified in the context of even pricier bond valuations, low interest rates, favorable fiscal policies, the appeal of the US over foreign markets, and supply/demand (given the abundance of global liquidity and the shrinking float of public companies due to buybacks and M&A).

However, I don’t think stocks will be driven much higher by multiple expansion, as investors will want to see rising earnings once again, which will depend upon a revival in corporate capital spending. The analyst consensus according to FactSet is for just under 10% EPS growth this year for the S&P 500, so that might be about all we get in index return without widespread earnings beats and increased guidance, although of course well-selected individual stocks could do much better. Last year was thought to be a great setup for small caps, but alas the trade wars held them back from much of the year, so perhaps this will be the year for small caps. While the S&P 500 forward P/E has already risen to 19.0x as of 1/17, the Russell 2000 small cap index is 17.2x and the S&P 600 is only 16.8x.

Of course, there are still plenty of potential risks out there – such as a China debt meltdown, a US dollar meltdown (due to massive liquidity infusions for the dysfunctional repo market and government deficit spending), a US vote for democratic-socialism and MMT, a military confrontation with Iran, or a reescalation in trade wars – but all seem to be at bay for now.

In this periodic update, I provide a detailed 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 look neutral, while the technical picture also is quite bullish (although grossly overbought and desperately in need of a pullback or consolidation period), and our sector rotation model retains its bullish posture. Notably, the rally has been quite broad-based and there is a lot of idle cash ready to buy any significant dip.

As a reminder, Sabrient now publishes a new Baker’s Dozen on a quarterly basis, and the Q1 2020 portfolio just launched on January 17. You can find my latest slide deck and Baker’s Dozen commentary at http://bakersdozen.sabrient.com/bakers-dozen-marketing-materials, which provide discussion and graphics on process, performance, and market conditions, as well as the introduction of two new process enhancements to our long-standing GARP (growth at a reasonable price) strategy, including: 1) our new Growth Quality Rank (GQR) as an alpha factor, which our testing suggests will reduce volatility and provide better all-weather performance, and 2) “guardrails” against extreme sector tilts away from the benchmark’s allocations to reduce relative volatility. Read on....

by Scott Martindale
President, Sabrient Systems LLC

The month of May turned out to be pretty decent for stocks overall, with the S&P 500 large caps up about +2%, with growth greatly outperforming value, and June has got off to a good start, as well. But the smaller caps were the bigger stars, as I have been predicting for several months, with the S&P 600 small caps up +6% for the month. Even after a volatile April, and even though the headlines on trade wars, oil prices, Iran, North Korea, Venezuela, Italy, et al were confusing if not frightful, and even though technical signals suggested overbought conditions and a likely pullback, investors have been reluctant to sell their equities and the late-month pullback was fleeting.

Nevertheless, many commentators are offering up lots of reasons why further upside is limited and stocks likely will turn tail into a downtrend, including political contagion in the EU, the US dollar strengthening too much such that overseas corporate profits take a hit, and yields rising too quickly such that they 1) burden a heavily-leveraged economy and 2) suppress stock prices by spiking the risk-free rate used in a discounted cash flow analysis. But I think the main thing weighing on investors’ minds right now is fear that things are “as good as it gets” when it comes to synchronized global growth, monetary and fiscal stimulus, and year-over-year growth in corporate earnings. In other words, now that the hope and optimism for strong growth actually has materialized into reality, there is nothing more to look forward to, so to speak. The year-over-year EPS comparisons won’t be so eye-popping. Earnings growth inevitably will slow, higher interest rates will suppress valuations, and P/E compression will set in.

However, recall that the so-called “taper tantrum” a few years ago led to similar investor behavior, but then eventually cooler heads prevailed as investors realized that the fundamental picture was strong and in fact extraordinary monetary accommodation was no longer necessary (or even desirable). Similarly, I think there is still plenty of fuel in the tank from tax reform, deregulation, and new corporate and government spending plans, offering up the potential to drive strong growth for at least the next few years (e.g., through revived capex, onshoring of overseas capital and operations, and M&A).

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 takes a bullish posture as stocks try to break out.

By the way, in response to popular demand, Sabrient is launching this week our first International Opportunity portfolio comprising 30-35 stocks from non-US developed markets (e.g., Canada, Western Europe, Australasia, Far East) based on the same “quantamental” growth-at-reasonable-price (GARP) portfolio construction process used for our Baker’s Dozen portfolios, including the in-depth earnings quality review and final vetting by our wholly-owned forensic accounting subsidiary Gradient Analytics. In addition, we are nearing two years since the inception of our Sabrient Select actively-managed strategy, a 30-stock all-cap GARP portfolio that is available for investment as a separately managed account (SMA) through a dual-contract arrangement. (Please contact me directly if you would like to learn more about this.) Read on....

by Scott Martindale
President, Sabrient Systems LLC

Many market commentators have been in a prolonged tizzy, warning of an inevitable selloff to come. And indeed we finally got one, with a huge spike in volatility. A climate of low inflation and structurally low interest rates has meant less discounting of future corporate earnings, which has allowed for higher enterprise values and stock prices. But when inflation fears suddenly popped up, investors feared an imminent repricing of equities at lower multiples. As I wrote at the start of the year, I expected some renewed volatility and compression in valuation multiples to occur during 2018, but I sure didn’t expect it to happen quite so soon. However, I also said that a correction would be healthy, and that it won’t necessarily be as deep of a selloff as so many investors have feared – and I stand by that prediction.

So, what is going on here? I think there were a few catalysts. First, the dollar has been plummeting on inflation worries, chasing away global fixed income investors and spiking yields, which put elevated equity valuations into question. Second, a healthy technical correction from January’s parabolic uptrend in stock prices spiked volatility to such a degree that the inverse VIX ETF/ETNs imploded, revealing structural problems with some of these products that not only spooked institutional investors but also triggered some abrupt changes to tactical equity exposures in their algorithmic trading models. And then we heard some FOMC members making statements implying that perhaps there is no longer a “Fed Put” supporting the market. It’s no wonder the long-expected correction finally (and quite suddenly) came about.

Given that the price chart had gone parabolic, it shouldn’t be too much of a surprise that volatility raised its ugly head, with the CBOE Market Volatility Index (VIX) briefly spiking above 50, much like an overstretched rubber band snaps back, and with sector correlations rising sharply. Nevertheless, I still expect solidly positive performance in the broad market indices by year end, although significantly lower than last year’s +22% performance on the S&P 500, and perhaps only in the high single digits. I also believe that heightened volatility and some compression in the broad market valuation multiples will lead to greater market breadth and lower sector correlations as investors pick their spots outside of the mega-caps (or passive index investing) and seek out higher returns in stocks that display strong growth prospects at a reasonable price (i.e., GARP) – with realistic potential for gains in the 15-25% range (or even higher).

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 moved to a neutral bias in response to the market turbulence. Read on....

by Scott Martindale
President, Sabrient Systems LLC

The S&P 500 finished 2017 by completing an unusual feat. Not only was the index up +22% (total return), but every single month of the year saw positive performance on a total return basis, and in fact, the index is on a 14-month winning streak (Note: the previous record of 15 straight was set back in 1959!). So, as you might expect, volatility was historically low all year, with the VIX displaying an average daily closing value of 11 (versus a “fear threshold” of 15 and a “panic threshold” of 20). But some of 2017’s strength was due to expansion in valuation multiples in anticipation of tax reform and lower effective tax rates boosting existing earnings, not to mention incentives for repatriating overseas cash balances, expansion, and capex.

Sector correlations also remained low all year, while performance dispersion remained high, both of which are indications of a healthy market, as investors focus on fundamentals and pick their spots for investing – rather than just trade risk-on/risk-off based on the daily news headlines and focus on a narrow group of mega-cap technology firms (like 2015), or stay defensive (like 1H2016). And Sabrient’s fundamentals-based portfolios have thrived in this environment.

Now that the biggest tax overhaul in over 30 years is a reality, investors may do some waiting-and-watching regarding business behavior under the new rules and the impact on earnings, and there may be some normalization in valuation multiples. In other words, we may not see 20% gains in the S&P 500 during 2018, but I still expect a solidly positive year, albeit with some elevated volatility.

In this periodic update, I provide a market outlook, conduct 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. Read on....

By Scott Martindale
President, Sabrient Systems LLC

As expected, August brought more volatility. Early in the month, the large cap, mid cap, and small cap indices all set new all-time closing highs while the CBOE Volatility Index (VIX) hit an all-time low. But then tough resistance levels failed to yield, the expected late-summer volatility set in, and support levels were tested. Nevertheless, the intra-month swoon (3% on the S&P 500) turned into a buying opportunity for the bulls, and by month-end the S&P 500 managed to eke out a small gain, giving it five straight positive months. Then the market started the month of September with a particularly strong day to put those all-time highs once again within spittin’ distance…that is, until North Korea detonated a hydrogen bomb in its testing area, while massive hurricanes created havoc. But by this past Friday, bulls had recovered key support levels.

One can only wonder how strong our global economy would be if it weren’t for all the tin-pot dictators, jihadis, and cyberhackers that make us divert so much of our resources and attention. Nevertheless, prospects for the balance of 2H2017 still look good, even though solid economics and earnings reports have been countered by government dysfunction, catastrophic storms, escalating global dangers, and plenty of pessimistic talk about market conditions, valuations, and credit bubbles. Thus, while equities continue to meander higher on the backs of some mega-cap Tech sector darlings and cautious optimism among some investors, Treasuries are also rising (and yields falling) to levels not seen since before the election in a flight to safety among other investors.

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. In summary, although September historically has been the weakest month of the year, our sector rankings still look moderately bullish, while the sector rotation model has managed to maintain its bullish bias, and overall the climate still seems favorable for risk assets like equities. Read on....

By Scott Martindale
President, Sabrient Systems LLC

July lived up to its history as a typically solid month for stocks, and 2H2017 is off to a strong start. Technology and Healthcare sectors continue to be the year-to-date leaders, and lately Utilities has gotten into the act on an income play as interest rates stay low. Large cap, mid cap, and small cap indices all continue to set all-time closing highs, while the CBOE Volatility Index (VIX) hit an all-time low last week. The 22,000 level on the Dow was just surpassed on a closing basis on Wednesday, and the 2,500 level on the S&P 500 beckons. Nasdaq has now shown positive performance in 11 of the past 13 months, so a little retrenchment is no surprise – if for no other reason but to take a breather and let other market segments play catch-up.

Although there are of course worrisome issues everywhere you look, the good news is that the global economy is strengthening, the Fed and other central banks are taking pains not to screw things up on their paths to “normalization,” and as a successful Q2 earnings season winds down, a weaker dollar should lead to a better Q3 than is currently forecasted. So, I would say that on balance, things continue to look encouraging. But as valuations in the mega caps (e.g., FAAMG) continue to rise, it finally may be time for small caps to seize the baton and start to outperform.

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. In summary, our sector rankings still look bullish, while the sector rotation model maintains its bullish bias, and the climate overall still seems favorable for risk assets like equities. However, while I was optimistic about solid market performance going into July, I think August might be a different story if the new levels of psychological resistance fail to break and volatility rears its head in this typically-languid month. Read on....

By Scott Martindale
President, Sabrient Systems LLC

The major US stock indexes continue to hold near their highs, awaiting the next upside catalyst, supported by persistently low interest rates, record share buybacks, net solid economic reports, and continued organic growth in corporate earnings – in spite of disappointments in the fiscal policy front. The S&P 500 has held solidly above 2,400, the Dow has stayed above 21,000, the Russell 2000 has held 1,400, the Tech-heavy Nasdaq Composite has held 6,000 despite a severe pullback in the market-leading large-cap Tech stocks, and oil has held above the critical $40 mark despite being in a general downtrend since the start of the year.

Recent momentum resides in Transportation, Financial, and small caps, which is a bullish development. In fact, the Dow Jones Transportation Average is setting new highs and is in full-on breakout mode.

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. In summary, our sector rankings still look slightly bullish, while the sector rotation model maintains its bullish bias and the climate overall still seems favorable for risk assets like equities – particularly dividend payers, small caps, and GARP stocks (i.e., growth companies among all caps selling at attractive forward PEG ratios). Moreover, July is typically a solid month for stocks, a strong first half typically bodes well for the second half, and the technical picture still looks favorable. Read on...