What the Market Wants: In a Fog
by David Brown, Chief Market Strategist, Sabrient Systems
David Brown
The market spent the month of August in a fog of mixed and contradictory economic results, often moving up on negative news and down on positive news. Last week was no exception, and it's doubtful whether we'll get any improved visibility this week, either.
The market dove early in the week, based on the sharp plunge in the Shanghai composite, and for the rest of the week, clung to middle ground, despite slightly positive news from the ISM and the Chicago PMI, and even better-than-expected pending home sales. Inexplicably, however, on the negative employment report that pegged unemployment at 9.7%, the market continued to move ahead, as if still in a fog. So we hit a pothole but so far have missed the detour sign.
From my viewpoint, other data that seemed important was ignored. Bank failures increased markedly in the month of August, including large banks in Texas and California, and while earnings reports were most often better than expected, revenue changes were, more often than not, flat to down. The persistent improvement in earnings through cost-cutting (which cannot sustain a recovery) was not given the attention it deserved.
Nonetheless, at the end of the week, Small-Cap Value was down 2.5%, as were all other style/caps, with Large-cap Growth being down the least (0.47%).
Sector Performance. Materials and Consumer Staples were the only positive sectors, with Financials down a whopping 2.4%.
Valuations continue to seem higher than justified in both the Materials and Financials sectors, which are still at the bottom of our forward-looking sector ranks. While Technology valuations also are somewhat higher than one would expect, there has been better news out of Technology than from most of the sectors.
Our best Sabrient forward-looking sectors are Utility, Energy and Health Care. It should be noted, however, that Energy will do well only as long as energy prices (think: oil) do well. Health Care is dependent upon the outcome of the Obama legislation, and there is some speculation that the legislation will be better for health care stocks than was originally expected.
As we move out of summer into September -- traditionally, a negative month after a very positive August -- the fog still has not lifted, and we're not sure whether or not we are detouring.
There will not be much new information this week, so I continue to advise that we take profits on fully valued positions and carefully shop for good buys in the safer sectors.
Market Stats. [Click here to see the Market Stats.]
Stocks to Consider. This week, I ran a MyStockFinder search (http://MyStockFinder.com ) using the GARP (Growth at Reasonable Price) preset search, but also up-weighted Technicals. Here are a variety of stock ideas that look intriguing from the top-ranked sectors:
- Energen Corporation (NYSE: EGN) – Utilities
- Chinese Petroleum & Chemical Corporation (Sinopec) (NYSE: SNP) – Energy
- Questcor Pharmaceuticals, Inc. (Nasdaq: QCOR) – Healthcare
- Syniverse Holdings, Inc. (NYSE: SVR) – Telecom
Until next week,
David Brown
Chief Market Strategist
SABRIENT SYSTEMS, LLC
Leaders in Investment Research
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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.