Scott Martindale  by Scott Martindale
  President & CEO, Sabrient Systems LLC

I have been expecting elevated volatility, and it has surely arrived. The CBOE Volatility Index (VIX) briefly spiked above 35 on 12/3 before settling back down below 20 last week as stocks resurged. Given lofty valuations (S&P 500 at 21.4x forward P/E) that appear to be pricing in continued economic recovery and strong corporate earnings further exceeding expectations, any hint of new obstacles – like onerous new COVID variants, renewed lockdowns, persistent supply chain disruptions, anemic jobs report, or relentless inflationary pressures – naturally sends fidgety investors to the sell button on their keyboards, at least momentarily. And now we learn that the Fed might have joined the legions of dour pundits by removing the word “transitory” from its inflation description while hastening its timetable for QE tapering (but don’t call it QE!) and interest rate hikes. Nevertheless, despite the near-term challenges that likely will lead to more spikes in volatility, investors are buying the dip, and I believe the path of least resistance is still higher for stocks over the medium term, but with a greater focus on quality rather than speculation.

However, investors are going to have to muster up stronger bullish conviction for the market to achieve a sustainable upside breakout. Perhaps Santa will arrive on queue to help. But with this new and unfamiliar uncertainty around Fed monetary policy, and with FOMC meeting and announcement later this week combined with an overbought technical picture (as I discuss in today’s post below), I think stocks may pull back into the FOMC meeting – at which time we should get a bit more clarity on its intentions regarding tapering of its bond buying and plan for interest rate hikes. Keep in mind, the Fed still insists that “tapering is not tightening,” i.e., they remain accommodative.

The new hawkish noises from the Fed came out of left field to most observers, and many growth stocks took quite a hit. Witness the shocking 42% single-day haircut on 12/3 for a prominent company like DocuSign (DOCU), for example. And similar things have happened to other such high-potential but speculative/low-quality names, many of which are held by the ARK family of ETFs. In fact, of the 1,086 ETFs scored by Sabrient’s fundamentals based SectorCast rankings this week, most of Cathie Woods’ ARK funds are ranked at or near the bottom.

Although I do not necessarily see DOCU and its ilk as the proverbial canary in the coal mine for the broader market, it does serve to reinforce that investors are displaying a greater focus on quality as the economy has moved past the speculative recovery phase, which is a healthy development in my view. In response, we have created the Sabrient Quality Index Series comprising 5 broad-market and 5 sector-specific, rules-based, strategic beta and thematic indexes for ETF licensing, which we are pitching to various ETF issuers. Moreover, we continue to suggest staying long but hedged, with a balance between 1) value/cyclicals and 2) high-quality secular growers & dividend payers. Hedges might come from inverse ETFs, out-of-the-money put options, gold, and cryptocurrencies (I personally hold all of them).

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 SectorCast rankings reflect a highly bullish bias, with the top two scorers being deep-cyclical sectors, Basic Materials and Energy, which are seeing surging forward EPS estimates and ultra-low forward PEG ratios (forward P/E divided by projected EPS growth rate) under 0.50. In addition, the technical picture is somewhat mixed and suggestive of a near-term pullback, although our sector rotation model maintains its bullish posture.

By the way, Sabrient’s latest Q4 2021 Baker’s Dozen model portfolio is already displaying solid performance despite having a small-cap bias and equal weighted position sizes that would typically suggest underperformance during periods of elevated market volatility. It is up +5.3% since its 10/20/2021 launch through 12/10/2021 versus +4.1% for the cap-weighted S&P 500, +1.2% for the equal-weight S&P 500, and -3.3% for the Russell 2000. Also, last year’s Q4 2020 Baker’s Dozen model portfolio, which terminates next month on 1/20/2022, is looking good after 14 months of life with a gross return of +43%. As a reminder, our various portfolios – including Baker’s Dozen, Small Cap Growth, and Dividend – all employ our enhanced growth-at-a-reasonable-price (aka GARP) approach that combines value, growth, and quality factors while seeking a balance between secular growth and cyclical/value stocks and across market caps. Read on....

Scott Martindale  by Scott Martindale
  President & CEO, Sabrient Systems LLC

I mentioned early last month that it had been quite a long stretch since the market had seen even a -5% correction, but we finally got it, with the S&P 500 falling -6% (intraday). Although many commentators (including myself) felt we needed even more of a correction in the major market indexes to really wring out some excesses and the “weak” holders, the underlying internals tell a different story of a much harsher “stealth” correction. Alpine Macro reported that 90% of the stocks in the S&P 500 have fallen at least -10% from their recent highs, with an average decline of -17% … and -38% in the Nasdaq Composite! A casual observer might not have noticed this since these individual stock corrections didn’t occur all at once, but rather in more of a rolling fashion as various industries fell in and out of favor at different times. The masking by the major indexes of these underlying corrections is the magic of passive index investing, as the diversification limits downside (albeit upside as well, of course).

Moreover, while the cap-weighted indexes have surged to new highs as recently as early September, the equal-weight and small-cap indexes have been trading sideways since March. Regardless, investors took the September correction as a buyable dip. Last Thursday-Friday provided two bullish breakout gaps, and in fact Thursday was the strongest day for the S&P 500 since March. Looking ahead, the question is whether the rapid 2-day surge is sustainable, or if there is some technical consolidation (aka “backing & filling”) to be done – or perhaps something much worse, as several prominent Wall Street veterans have predicted.

No doubt, economic challenges abound. Energy prices are surging. COVID persists in much of the world, especially emerging markets, which is at least partly responsible for the persistent supply chain issues and labor shortages in the manufacturing and transportation segments that are proving slow to resolve. Retail and restaurant industries continue to have difficulty filling jobs (and they are seeing a high rate of “quits”). And now we are seeing fiscal and monetary tightening in China – likely leading to lower GDP growth (if not a “hard landing”) – due to long-festering financial leverage and “shadow banking” finally coming to roost (witness the Evergrande property development debacle, and now it appears developer Modern Land is next). Indeed, we see many similarities with Q4 2018 (including the S&P 500 price chart), when the market endured a nasty selloff. Investors should be mindful of these risks. So, although TINA-minded (“there is no alternative”) equity investors continue to pour money into stocks, and an exuberant FOMO (“fear of missing out”) melt-up is possible going into year-end, there likely will be elevated volatility.

I write in greater depth about oil prices and China’s troubles in this article.

Q3 earnings reporting season is now underway, and I expect the number and magnitude of upside surprises and forward guidance will determine the next directional trend. In any case, we continue to like the Energy sector, even after its recent run (in fact, you will find a couple of oil exploration & production firms in the new Baker’s Dozen coming out this week). Wall Street estimates in the sector still appear to be too low based on projected prices, and the dividend yields are attractive. Sabrient’s SectorCast ETF rankings continue to show Energy at or near the top. Actually, from a broader perspective, the “deep cyclical” sectors (especially Energy, Materials, and Industrials), with their more volatile revenue streams but relatively fixed (albeit high) cost structure (and high earnings leverage), remain well positioned to show strong sales growth and, by extension, upside earnings surprises.

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 SectorCast rankings reflect a solidly bullish bias; the technical picture is somewhat mixed; and our sector rotation model has regained its bullish posture (pending technical confirmation early this week).

By the way, Sabrient’s new Q4 2021 Baker’s Dozen launches on Wednesday, 10/20/21. As a reminder, our newer portfolios – including Baker’s Dozen, Small Cap Growth, Dividend, and Forward Looking Value – all reflect the process enhancements we implemented in December 2019 in response to the unprecedented market distortions that created historic Value/Growth and Small/Large performance divergences. Our enhanced growth-at-a-reasonable-price (aka GARP) approach combines value, growth, and quality factors while seeking a balance between secular growth and cyclical/value stocks and across market caps.  Read on....

Scott Martindale  by Scott Martindale
  President & CEO, Sabrient Systems LLC

Another positive month for the major indexes, despite plenty of new bricks in the proverbial Wall of Worry. That makes 7 months in a row – the longest streak in over 30 years – and 14 of the past 17 months (since the pandemic low). From a technical (chart) perspective, the S&P 500 has tested its 50-day simple moving average seven times this year, each time going on to hit a new high. And it’s not just the cap-weighted index (SPY) as the equal-weight version (RSP) has been moving in lockstep, illustrating good market breadth and confirming market conviction. Stocks seem to have already priced in some modest tapering of asset purchases by year end, so in the wake of Fed chairman Powell’s late-August speech in Jackson Hole indicating no plans for rate hikes, stocks surged yet again. Indeed, it has become a parabolic “melt-up,” which of course cannot go on forever.

Many investors have been patiently awaiting a significant market correction to use as a buying opportunity, but it remains elusive. What happened to the typical August low-volume technical correction? The big money institutions and hedge funds certainly have stuck to the script by reducing equity exposure and increasing exposure to volatility. But retail investors didn’t get the memo as every time it appears the correction has begun, they treat it like a buyable dip – not just in meme stocks but also the disruptive, secular-growth Tech stocks that so dominate total market cap and the cap-weighted, broad-market indexes. It seems like yet another market distortion caused by government intervention and de facto Modern Monetary Theory (MMT) that has flooded the economy with free money and kept workers at home to troll on social media, gamble on DraftKings, and speculate in Dogecoin, NFTs, SPACs, and meme stocks.

Will September finally bring a significant (and overdue) correction, or will the dip buyers, led by an active, brash, and risk-loving retail investor, continue to scare off the short sellers and prop up the market? Is this week’s pullback yet another head fake? And regardless, will the S&P 500 (both cap-weight and equal-weight) finish the year higher than last week’s all-time highs?

There is little doubt in my mind that the big institutional investors continue to wait patiently in the tall grass like a cheetah to pounce on any significant market weakness, like a 10+% selloff. Valuations are dependent on earnings, interest rates, and the equity risk premium (ERP, i.e., earnings yield minus the risk-free rate), and today we have robust corporate earnings, rising forward guidance, persistently low interest rates, a dovish Fed, and a low ERP – which is related to inflation expectations that are much lower than recent CPI readings would have you expect. I continue to expect inflation to moderate in 2022 while interest rates remain constrained by a stable dollar and Treasury demand. The Fed’s ongoing asset purchases (despite some expected tapering) along with robust demand among global investors (due to global QE and low comparative yields) has put a bid under bonds and kept nominal long term yields low (albeit with negative real yields). Indeed, bond yields today are less sensitive to inflationary signals compared to the past.

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 SectorCast rankings reflect a solidly bullish bias; the technical picture has been strong but remains in dire need of significant (but healthy and buyable, in my view) correction; and our sector rotation model retains its bullish posture. We continue to believe in having a balance between value/cyclicals and secular growth stocks and across market caps, although defensive investors may prefer an overweight on large-cap, secular-growth Tech and high-quality dividend payers.

As a reminder, we post my latest presentation slide deck and Baker’s Dozen commentary on our public website.) Sabrient’s newer portfolios – including Q3 2021 Baker’s Dozen, Small Cap Growth, Dividend, and Forward Looking Value– all reflect the process enhancements that we implemented in December 2019 in response to the unprecedented market distortions that created historic Value/Growth and Small/Large performance divergences. With a better balance between cyclical and secular growth and across market caps, most of our newer portfolios once again have shown solid performance relative to the benchmark during quite a range of evolving market conditions.

By the way, I welcome your comments, feedback, or just a friendly hello!  Read on….

Scott Martindale  by Scott Martindale
  President & CEO, Sabrient Systems LLC

As earnings season gets going, I believe we will see impressive reports reflecting stunning YOY growth in both top and bottom lines. According to Bloomberg, sell-side analysts' consensus YOY EPS growth estimate for the S&P 500 is north of 63% for Q2, 36% for full-year 2021, and 12% for 2022. But I still consider this to be somewhat conservative, with plenty of upside surprises likely. However, the market’s reaction to each earnings release will be more predicated on forward guidance, as investors are always forward-looking. To me, this is the bigger risk, but I am optimistic. Today’s lofty valuations are pricing in the expectation of both current “beats” and raised guidance, so as the speculative phase of the recovery moves into a more rational expansionary phase, I expect some multiple contraction such that further share price appreciation will depend upon companies “growing into” their valuations rather than through further multiple expansion, i.e., the earnings growth rate (through revenue growth, cost reduction, and rising productivity) will need to outpace the share price growth rate.

Despite the lofty valuations, investors seem to be betting on another blow-out quarter for earnings reports, along with increased forward guidance. On a technical basis, the market seems to be extended, with unfilled “gaps” on the chart. But while small caps, value stocks, cyclical sectors, and equal-weight indexes have pulled back significantly and consolidated gains since early June, the major indexes like S&P 500 and Nasdaq that are dominated by the mega caps haven’t wanted to correct very much. This appears to reinforce the notion that investors today see these juggernaut companies as defensive “safe havens.” So, while “reflation trade” market segments and the broader market in general have taken a 6-week risk-off breather from their torrid run and pulled back, Treasuries have caught a bid and the cap-weighted indexes have hit new highs as the big secular-growth mega-caps have been treated as a place to park money for relatively safe returns.

It also should be noted that the stock market has gone quite a long time without a significant correction, and I think such a correction could be in the cards at some point soon, perhaps to as low as 4,000 on the S&P 500, where there are some unfilled bullish gaps (at 4,020 and 3,973). However, if it happens, I would look at it as a long-term buying opportunity – and perhaps mark official transition to a stock-picker’s market.

The past several years created historic divergences in Value/Growth and Small/Large performance ratios with narrow market leadership. But after a COVID-selloff recovery rally, fueled by a $13.5 trillion increase in US household wealth in 2020 (compared to an $8.0 trillion decrease in 2008 during the Financial Crisis), that pushed abundant cheap capital into speculative market segments, SPACs, altcoins, NFTs, meme stocks, and other high-risk investments (or “mal-investments”), it appears that the divergences are converging, leadership is broadening, and Quality is ready for a comeback. A scary correction might be just the catalyst for the Quality factor to reassert itself. It also should allow for active selection, strategic beta, and equal weighting to thrive once again over the passive, cap-weighted indexes, which also would favor the cyclical sectors (Financial, Industrial, Materials, Energy) and high-quality dividend payers (e.g., “Dividend Aristocrats”). But I wouldn’t dismiss secular-growth Technology names that still sport relatively attractive valuations (Note: the new Q3 2021 Baker’s Dozen includes four such names).

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 technicals picture has been strong for the cap-weighted major indexes but is looking like it is setting up for a significant (but buyable) correction; and our sector rotation model retains its bullish posture.

As a reminder, Sabrient’s newer portfolios – including Small Cap Growth, Dividend, Forward Looking Value (launched on 7/7/21), and the upcoming Q3 2021 Baker’s Dozen (launches on 7/20/21) – all reflect the process enhancements that we implemented in December 2019 in response to the unprecedented market distortions that created historic Value/Growth and Small/Large performance divergences. With a better balance between cyclical and secular growth and across market caps, most of our newer portfolios once again have shown solid performance relative to the benchmark (with some substantially outperforming) during quite a range of evolving market conditions. (Note: we post my latest presentation slide deck and Baker’s Dozen commentary on our public website.)  Read on….

Scott Martindale  by Scott Martindale
  President & CEO, Sabrient Systems LLC

First off, I am pleased to announce that Sabrient’s Q1 2021 Baker’s Dozen portfolio launched on January 20th! I am particularly excited because, whereas last year we were hopeful based on our testing that our enhanced portfolio selection process would provide better “all-weather” performance, this year we have seen solid evidence (over quite a range of market conditions!) that a better balance between secular and cyclical growth companies and across market caps has indeed provided significantly improved performance relative to the benchmark. Our secular-growth company selections have been notably strong, particularly during the periods of narrow Tech-driven leadership, and then later the cyclical, value, and smaller cap names carried the load as both investor optimism and market breadth expanded. I discuss the Baker’s Dozen model portfolio long-term performance history in greater detail in today’s post.

As a reminder, you can go to http://bakersdozen.sabrient.com/bakers-dozen-marketing-materials to find our “talking points” sheet that describes each of the 13 stocks in the new portfolio as well as my latest Baker’s Dozen presentation slide deck and commentary on the terminating portfolios (December 2019 and Q1 2020).

No doubt, 2020 was a challenging and often terrifying year. But it wasn’t all bad, especially for those who both stayed healthy and enjoyed the upper leg of the “K-shaped” recovery (in which some market segments like ecommerce/WFH thrived while other segments like travel/leisure were in a depression). In my case, although I dealt with a mild case of COVID-19 last June, I was able to spend way more time with my adult daughters than I previously thought would ever happen again, as they came to live with me and my wife for much of the year while working remotely. There’s always a silver lining.

With President Biden now officially in office, stock investors have not backed off the gas pedal at all.  And why would they when they see virtually unlimited global liquidity, including massive pro-cyclical fiscal and monetary stimulus that is likely to expand even further given Democrat control of the legislative triumvirate (President, House, and Senate) plus a dovish Fed Chair and Treasury nominee? In addition, investors see low interest rates, low inflation, effective vaccines and therapeutics being rolled out globally, pent-up consumer demand for travel and entertainment, huge cash balances on the sidelines (including $5 trillion in money market funds), imminent calming of international trade tensions, an expectation of big government spending programs, enhanced stimulus checks, a postponement in any new taxes or regulations (until the economy is on stronger footing), improving economic reports and corporate earnings outlooks, strong corporate balance sheets, and of course, an unflagging entrepreneurial spirit bringing the innovation, disruption, and productivity gains of rapidly advancing technologies.

Indeed, I continue to believe we are entering an expansionary economic phase that could run for at least the next few years, and investors should be positioned for both cyclical and secular growth. (Guggenheim CIO Scott Minerd said it might be a “golden age of prosperity.”) Moreover, I expect fundamental active selection, strategic beta ETFs, and equal weighting will outperform the cap-weighted passive indexes that have been so hard to beat over the past few years. If things play out as expected, this should be favorable for Sabrient’s enhanced growth-at-a-reasonable-price (aka GARP) approach, which combines value, growth, and quality factors. Although the large-cap, secular-growth stocks are not going away, their prices have already been bid up quite a bit, so the rotation into and outperformance of quality, value, cyclical-growth, and small-mid caps over pure growth, momentum, and minimum volatility factors since mid-May is likely to continue this year, as will a desire for high-quality dividend payers, in my view.

We also believe Healthcare will continue to be a leading sector in 2021 and beyond, given the rapid advancements in biomedical technology, diagnostics, genomics, precision medicine, medical devices, robotic surgery, and pharmaceutical development, much of which are enabled by 5G, AI, and 3D printing, not to mention expanding access, including affordable health plans and telehealth.

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 some bouts of volatility), the sector rankings reflect a moderately bullish bias, the longer-term technical picture remains strong (although it is near-term extended such that a pullback is likely), and our sector rotation model retains its bullish posture. Read on….

Scott Martindale  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….

Scott Martindale  by Scott Martindale
  President & CEO, Sabrient Systems LLC

Well, the election is finally upon us, and most folks on either side of the aisle seem to think that the stakes couldn’t be higher. That might be true. But for the stock market, I think removing the uncertainty will send stocks higher in a “relief rally” no matter who wins, as additional COVID stimulus, an infrastructure spending bill, and better corporate planning visibility are just a few of the slam-dunk catalysts. Either way, Modern Monetary Theory (MMT) is here, as both sides seem to agree that the only way to prevent a COVID-induced depression in a highly indebted economy is to print even more money and become even more leveraged and indebted. Now investors can only anxiously pray for a clean, uncontested election, followed soon by a reopening of schools and businesses. Stocks surely would soar.

Of course, certain industries might be favored over others depending upon the party in power, but in general I expect greater market breadth and higher prices into year-end and into the New Year. However, last week, given the absence of a COVID vaccine and additional fiscal stimulus plus the resurgence of COVID-19 in the US and Europe, not to mention worries of a contested election that ends up in the courts, stocks fell as investors took chips off the table and raised cash to ride out the volatility and prepare for the next buying opportunity. The CBOE Volatility Index (VIX) even spiked above 41 last week and closed Friday at 38, which is in panic territory (although far below the all-time high of 85.47 in March).

Nevertheless, even as the market indices fell (primarily due to profit-taking among the bigger growth names that had run so high), many of the neglected value stocks have held up pretty well. And lest you forget, global liquidity is abundant and continuing to rise (no matter who wins the election) – and searching for higher returns than ultra-low (or even negative) government and sovereign debt obligations are yielding.

All in all, this year has been a bit deceiving. While the growth-oriented, cap-weighted indexes have been in a strong bull market thanks to a handful of mega-cap Tech names, the broader market essentially has been in a downtrend since mid-2018, making it very difficult for any valuation-oriented portfolio or equal-weight index to keep up. However, since mid-July (and especially since the September lows) we have seen signs of a nascent rotation into value/cyclicals/small caps, which is a bullish sign of a healthy market. Institutional buyers are back, and they are buying the higher-quality stocks, encouraged by solid Q3 earnings reports.

Going forward, our expectation is that the historic imbalances in Value/Growth and Small/Large performance ratios will continue to gradually revert and market leadership will broaden such that strategic beta ETFs, active selection, and equal weighting will thrive once again. This should be favorable for value, quality, and growth at a reasonable price (GARP) strategies like Sabrient’s, although not to the exclusion of the unstoppable secular growth industries. In other words, investors should be positioned for both cyclical and secular growth.

Notably, Sabrient has enhanced its GARP strategy by adding our new Growth Quality Rank (GQR), which rewards companies with more consistent and reliable earnings growth, putting secular-growth stocks on more competitive footing in the rankings with cyclical growth (even though their forward valuations are often higher than our GARP model previously rewarded). As a result, our newer Baker’s Dozen portfolios launched since December 2019 reflect better balance between secular growth and cyclical/value stocks and across large/mid/small market caps. And those portfolios have shown markedly improved performance relative to the benchmark, even with this year’s continued bifurcation. Names like Adobe (ADBE), Autodesk (ADSK), Digital Turbine (APPS), Amazon (AMZN), Charter Communications (CHTR), NVIDIA (NVDA), and SolarEdge Technologies (SEDG) became eligible with the addition of GQR, and they have been top performers. But at the same time, our portfolios are also well-positioned for a broadening or rotation to value, cyclicals, and small caps. In addition, our three Small Cap Growth portfolios that have launched during 2020 using the same enhanced selection process are all nicely outperforming their benchmark. So, IMHO, 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 rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. In summary, I expect stocks to move higher once the election results are finalized – but with plenty of volatility along the way until the economy is fully unleashed from its COVID shackles. In addition, our sector rankings reflect a moderately bullish bias (as the corporate outlook is starting to clear up), the technical picture looks ready for at least a modest bullish bounce from last week’s profit-taking, and our sector rotation model retains its neutral posture. As a reminder, you can go to http://bakersdozen.sabrient.com/bakers-dozen-marketing-materials to find my latest Baker’s Dozen slide deck and commentary on terminating portfolios. Read on....

Wall Street presently seems to be in a sideways state of mind, with the major indices traveling predominantly horizontal these last couple of weeks. Not a surprise, really, as the news cycle has been relatively tame and the current earnings season largely followed the predicted script.

So for investors, the question is whether the market is consolidating for a push into yet another round of record highs or simply running out of steam and veering towards an inevitable correction. And, with a busy week on tap, the year’s bullish uptrend gets yet another opportunity to be tested, and the consolidation-vs-reversal question gets yet another look.

daniel / Tag: DJIA, COMP, SPX, FDN, SOXX, FXL, SMH, QTEC, IGV, VGK, Eurozone, Mario Draghi, FED, GDP, ECB / 0 Comments

“Mastering others is strength. Mastering yourself is true power.”  -- Lao Tzu

However the banking debacle in Cyprus plays out over the next few days and weeks, it should serve as a reminder that, economically speaking, much of Europe remains on shaky ground.

daniel / Tag: AAPL, SPX, DJIA, EZU, PSCT, SOXX, FDN, TECL, IGV, SMH, FXL, QTEC Technology Sector, Eurozone, Cyprus, ECB, EC, TROIKA, GDP, IMF / 0 Comments

ETF Periscope: Benny and the Greeks

“Why don't they make the whole plane out of that black box stuff.“  --Steven Wright

Ben Bernanke struck out swinging.

Next up: the European Union’s heavy hitters. How they handle the curve ball will go a long way toward establishing the market’s direction for the upcoming week and, most likely, for the remainder of the year.

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