by Scott Martindale
  CEO, Sabrient Systems LLC

Quick portfolio update: Sabrient’s Q3 2026 Baker’s Dozen quarterly portfolio launched on 7/20 with a diverse group of 13 stocks across market caps and business sectors, including both prominent and under-the-radar names. Also, the new Sabrient Dividend 57 quarterly portfolio just launched on 8/4 as a growth & income strategy, with a diverse group of 48 high-quality stocks across market caps and sectors and a current yield of 3.8%. Additionally, our annual Forward Looking Value 14 portfolio will launch on 8/26 with a diverse group of high-quality, value-oriented stocks having good growth potential across market caps and sectors.

Overview

There has been outsized investor focus on inflation and the Fed’s response to it—something that new chairman Kevin Warsh is trying to diminish. He has stated, "…market participants are learning to play the ball, not the referee." Warsh has suggested a preference fulfilling the mandate of price stability through a combination of lower policy rates, continued balance sheet reduction, and structural reform of the official inflation metrics (which rely on many lagged, imputed, and low-relevance components). Some observers and several FOMC members say we must have rate hikes to control the inflationary spiral, while others say we need rate cuts to boost the struggling lower leg of our K-shaped economy (lower-income and working-class consumers, small businesses, and housing) and the alarmingly low personal savings rate (2.7% versus a long-term average of 8.3%) that has been supporting personal consumption. Count me in the latter group, as I explain in my full commentary below.

But that’s not stopping the bond vigilantes from boycotting the massive issuance of debt and thus pushing up longer-term rates at an alarming pace, which negatively impacts mortgage rates, corporate borrowing costs, and the discount rate on stock valuations. Uncertainty leads to higher term premiums. It might be not only a protest against rising federal debt but also anticipation of the Fed shrinking its balance sheet (aka QT), which pulls cash (bank reserves) out of the financial system while increasing the supply of bonds in the market (leading to higher yields)—even though the Fed has already reduced its balance sheet by $2.4 trillion (from $9 trillion in 2022) to remove about half its pandemic-era QE accumulation.

As a result, 10-year Treasury yields made another new 18-month high at 4.74% at the end of July, and the 30-year reached its highest yield since 2007 of 5.27%, entirely due to rising real rates not inflation expectations (which remain modest). Although yields pulled back last week on hopeful Iran news, plunging crude oil prices, and weak jobs reports, providing hope of a less restrictive Fed. So, although longer-term yields may well rise further—with the 10-year potentially challenging 5% for the first time in three years—I see this as a buying opportunity for fixed income, such as with iShares 20+ Year Treasury ETF (TLT) with a current yield of 4.75%, particularly if inflation has seen its peak and is pulling back, as I suspect it is.

The federal deficit is now roughly $2 trillion out of a $7 trillion total budget (that’s nearly 30% of the total budget!), which must be financed through Treasury issuance. And roughly half that deficit is interest on debt payments (now exceeding $1 trillion/yr and growing fast), which rises as debt increases, requiring new issuances and debt rollovers—both at higher interest rates than before as the Treasury Dept. has focused on the short end of the yield curve, thus lowering the weighted average maturity of federal debt.

It’s a death spiral rapidly overwhelming the budget, which (as I have discussed at length in many prior posts) must be addressed with a 3-prong approach of: 1) growing away the debt through robust GDP growth given that tax receipts historically average 17% of GDP no matter the tax rates, 2) cutting away the debt through reduced spending growth below the rate of GDP growth and rooting out waste and fraud, and 3) inflating away the debt through elevated inflation rates that reduce the dollar value of the debt.

Meanwhile, the giant hyperscalers are not only spending most or all of the massive cash flows but are also flooding the corporate bond market with as much as $1 trillion for AI infrastructure buildout. So, perhaps part of Warsh’s plan is to let the market do the dirty work of suppressing economic activity by raising longer-term rates—leading to higher mortgage rates, corporate borrowing costs, and the discount rate on stocks valuations—hopefully not to the point of causing a recession.

For now, there is no sign of recession as the Atlanta Federal Reserve’s purely model-driven GDPNow forecast shows an estimate for Q3 real GDP growth of a robust +5.8% as of 8/6 (although the more nuanced consensus of “Blue Chip” economists is only 2.0%). You might recall the forecast showing strong numbers for Q2 with a high of +4.3% in late May before falling to a low of +1.2% in early July, with the final BEA report coming in at just +1.5%. Nonetheless, there was plenty of good in the report, as non-government private spending (consumers and private fixed investment) grew +3.9%.

And although this private spending was offset by 1) falling net exports (as imports surged +11.5%, driven by AI-related components), which alone reduced the final number by 1.01 percentage points (pps), and 2) private inventory drawdowns, which reduced it by 0.67 pps, both of these metrics in fact reflect robust underlying domestic demand, consumer spending, corporate capex, and overall economic activity. Indeed, when high imports and low inventories suppress GDP, it typically suggests impending economic acceleration and revved-up domestic manufacturing, which would boost GDP metrics in subsequent quarters—which the Atlanta Fed’s GDPNow forecast seems to be reflecting.

In my full commentary below, I discuss:

1. The selloff in the AI trade and the restoration of Apple’s prominence
2. Hyperscaler capex, free cash flow, and power demand
3. Solid GDP growth but mixed messages on jobs and housing
4. Trends in inflation, supply chain pressures, and productivity
5. The bond vigilantes, rising federal debt, China’s woes, and Fed policy
6. My final comments section pushing back on the overwrought AI backlash/alarmism
7. Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas

With all the turmoil in the AI trade, which was overdue after such a meteoric rise, market leadership continues to broaden and rotate. The fact that the market rotated rather than sell everything and go to cash is encouraging and suggestive of continued bullish conviction. Russell 2000 companies’ earnings growth forecasts for CY2026 have climbed to 38% from about 23% at the beginning of the year—in spite of rising interest rates that tend to have outsized impact on the floating-rate debt typically carried by smaller firms. And the equal-weight S&P 500 ETF (RSP) is approaching $100 billion in AUM, with performance led by many of the “S&P 493” rather than the MAG7.

Chamath Palihapitiya, entrepreneur and All-In Podcast team member, recently quipped, “Fundraising requires narrative, and ‘we are building God’ is a better pitch than ‘we wrote some very clever linear algebra, pirated the internet, and threw a bunch of compute at it.’”  Perhaps that’s what investors reduced it to as they abandoned the AI trade—at least for the moment. And perhaps it is true that our economy has been overly reliant upon AI-led expansion with yet-to-be-proven ROI, especially datacenters.

Indeed, the dollar value of datacenter construction plus computers and communications equipment are up 23% YoY, with the hyperscalers’ capex [in order of dollar commitments: Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL), Meta (META), Oracle (ORCL), and now SpaceX (SPCX)] projected to be in the range of $700-800 billion for CY2026 (40% higher than CY2025)—leading to reduced shareholder-friendly buybacks but surging global semiconductor sales. According to the Semiconductor Industry Association, chip sales worldwide were up +123% YoY in the month of June, totaling over $400 billion during Q2, and are expected to exceed $1.5 trillion for CY2026.

That’s a lot of investment to recover. But as Tech executive and investor Nat Friedman opined, “Pessimists sound smart. Optimists make money.” Indeed, longer term, I believe the broad potential ROI of AI—in reshaping our economy and society through massive productivity gains, solving complex scientific and technological challenges, and fundamentally transforming the workplace and daily life—is stronger and materializing faster than anticipated even at the beginning of the year.

The use cases and compute demand for AI have barely begun to manifest, with a future encompassing autonomous transportation, factory automation, humanoid robots, personal assistants for hundreds of millions of individual users, and AI assistance on everything from drones for law enforcement, to surgery and drug discovery, to optimized asset maintenance, smart grid energy, and fraud monitoring—not to mention the associated power demand for it all.

So, am I concerned about whether the massive AI capex by the hyperscalers on infrastructure (like datacenters) and power generation will see attractive ROI anytime soon? I am not. In fact, I bought into the July “tech wreck,” including some names in memory and storage as well as the MAG7 ETF (MAGS), and I bought into the “SaaSpocalypse” in February and again in April via the iShares Tech-Software ETF (IGV). In its earnings report the other day, Palantir (PLTR) described commercial demand as “otherworldly,” and the stock surged 30%. In my view, for anyone who felt they had missed the boat on the AI surge and didn’t want to chase it—this was the pullback you were waiting for.

Of course, there is no guarantee that the market won’t turn tail once again, given the unresolved conflict with Iran and its terrorist proxies and the real potential for reescalation. And besides Iran, a plethora of uncertainties persist with oil prices, shipping and supply chains, trade deals and tariffs, Ukraine, China, Japanese yen, federal debt, civil strife, midterm elections and the unnerving rise of DSA candidates, inflation, jobs, and monetary policy from a revamped Fed. Did I miss anything?

But fundamental tailwinds still outweigh headwinds, in my view, given AI optimism, robust capex, deregulation, lower taxes, re-privatization, re-industrialization (onshoring of manufacturing), diversification of supply chains (not deglobalization), rising productivity/margins/earnings, low credit spreads, and resumed disinflationary trends. Deregulation is focused heavily on encouraging domestic fossil fuel production, less burdensome financial oversight, and less onerous climate rules, mostly to the advantage of Energy, Financials, and Industrials sectors.

Forward P/E multiples have receded largely due to a rising discount rate as bond yields surge. And yet stocks keep going up on the back of incredible earnings growth and fast-rising forward estimates. According to First Trust, “Analyst estimates have increased as the year has unfolded, with Large Cap, Mid Cap, and Small Cap Index EPS estimated to reach a record $354.46, $219.63, and $107.53, respectively, in 2026 (as of 8/3/26) [according to Bloomberg]. For comparison, analyst estimates were much lower at the start of the year, with the same indices estimated to see calendar year 2026 earnings of $310.84, $202.91, and $96.06 (as of 12/31/25).”

Indeed, the S&P 500 is on pace for blended earnings growth in Q2 of 47% versus a forecast of 23% just a few weeks ago. However, if you strip out Amazon (AMZN) and Alphabet (GOOGL), whose incredible earnings reports were largely driven by non-operating gains on investments in Anthropic and SpaceX, the blended S&P 500’s blended EPS growth falls to around 29%, which is still quite impressive.

Overall, given the market broadening beyond the Big Tech titans, and assuming the Fed does not become more hawkish, I continue to see opportunities in active stock selection, as well as in cyclicals, value stocks, small caps, and bond-alternative dividend payers. Indeed, Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios have been largely outperforming their benchmarks—some by substantial margins. And as a reminder, our Earnings Quality Rank (EQR) is licensed as a quality prescreen to the actively managed, low-beta First Trust Long-Short ETF (FTLS), which now has nearly $2.5 billion in AUM.

By the way, in my July post, I wrote a long Final Comments section on the alarming rise of socialism, which I would encourage you to read if you haven’t already. Although I acknowledge the disparate impacts of the K-shaped economy, the socialists’ harping on fairness and wealth inequality is largely a red herring as living standards, real incomes, consumption, and life expectancies have generally risen across demographics nationally. It certainly doesn’t warrant dismantling the capitalist system that has created so much innovation, value, wealth, comfort, and good for the world.

The exception to broadly rising living standards seems to lie in many of our deep-blue cities and states. So today, let me also add a comment on the “affordability” issue that has become the main talking point of the Left against the Trump Administration. The reality is that the bluest cities and states tend to have the worst affordability, as reinforced by US News & World Report’s latest 2026 rankings of states that put California dead last in its specific “Affordability” metric, followed by other deep-blue states, namely New Jersey, Hawaii, New York, Washington, Massachusetts, Maryland, and Colorado. It also put California dead last for the broader “Opportunity” category, which comprises the subcategories of Economic Opportunity, Affordability, and Equality across demographic groups.

So, don’t be gaslighted by deceptive electioneering. The answer is not to double down on the same misguided and counterproductive policies—like onerous zoning restrictions and permitting processes, punitive taxation, high energy prices, mandated worker benefits, rent control, sanctuary policies, and permissiveness on crime and homelessness—that have degraded quality of life for everyone while inviting fraud and corruption. Rather, voters should pivot back to embracing free markets, meritocracy, property rights, and the rule of law that built our great country. Such principles have proven much more adept at solving problems than dogmatic bureaucrats, virtually none of whom have any private-sector leadership experience. Affordability is a genuine problem, particularly in several high-cost blue states, and policymakers in these locales shouldn't assume that further expanding redistribution or intervention policies will solve the problems that were likely created by these policies in the first place.

Here is a link to this full post in printable PDF format. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

Quick note: Sabrient’s new Q3 2026 Baker’s Dozen Portfolio will launch on Monday 7/20 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across 8 business sectors, including several under-the-radar names. Notably, the next-to-terminate Q2 2025 Baker’s Dozen shows a gross total return of +54.7% from its inception date of 4/17/25 through 7/10/26, vs. +45.6% for SPY. Until 7/17, the Q2 2026 portfolio remains in primary market for new investment. Its top performers so far are Seagate Technologies (STX), Roku (ROKU), and AbbVie (ABBV).

Overview

During Q2 2026, the S&P 500 and Nasdaq Composite indexes posted their best quarter since the pandemic recovery in 2020, rising +14.9% and +21.4%, respectively, driven by AI-related chip stocks, as the resilient bull market powers on. And encouragingly, market breadth expanded nicely as the Russell 2000 small cap index was up +21.4% (following a flat +0.9% Q1), giving it its best H1 since 1991 (+22.6%) as investors sought to broaden their exposure into growing companies poised to benefit from the One Big Beautiful Bill Act’s (OBBBA) tax policies, deregulation, and incentives.

After ChatGPT arrived in November 2022, the market was all about AI-dominant Big Tech, creating hyperscale, and spending unprecedented capex (consuming all the hyperscalers’ massive cash flow, plus some new debt) that drove a 150% gain in the Nasdaq over the ensuing 3.5+ years (annualizing around 30%/yr). But so far this year, the “S&P 493” have vastly outperformed the MAG7 (which peaked on 5/14 and then sold off 15% by 6/26 before bouncing), and investors have invited small caps—and other “trickle down” industries benefiting from massive AI capex—to join the party, despite the event-driven oil price shock, inflation spike, and rising Treasury yields. But Treasury yields are likely being driven more by the hawkish Fed talk than from concerns about structural inflation, and although the coast isn’t entirely clear of macro hurdles, it would be highly unusual for this broadening advance to spell the end of the bull market.

In my full commentary below, I discuss:

1. The trend in consumer sentiment vs. stock prices
2. AI capex and power demand
3. Fundamental tailwinds and the impact on China
4. The “SaaSpocalyse” and what happens next
5. Global liquidity concerns
6. Status and outlook for GDP, inflation, jobs, and productivity
7. My final comments section on stanching the insidious rise of socialism in this country
8. Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas

Investor preferences even within Big Tech are definitely rotating. Suddenly, Apple (AAPL) has caught up with Alphabet (GOOGL) as the top performing MAG7 stocks YTD. Apple is expanding its relationship with Broadcom (AVGO) in a $30 billion chipmaking deal to produce more than 15 billion chips in the US, including expansion of Broadcom’s Fort Collins, CO facility. There are now 13 stocks in the $1 trillion market cap club—the MAG7 plus tech sector comrades Taiwan Semi (TSM), Broadcom (AVGO), SpaceX (SPCX), and Micron (MU), along with financial Berkshire Hathaway (BRK-B) and healthcare name Lilly & Co (LLY).

Meanwhile, previous investor darling NVIDIA (NVDA) is now trading at its lowest multiple since 2019. Despite posting an 85% YoY increase in revenue, hitting a whopping $81.6 billion last quarter, share price has been flat such that its forward P/E at around 22x is on par with the broad S&P 500’s composite forward P/E. Compare that to its 5-year average of 72x. The chart below is from Phil Rosen of Opening Bell Daily.

After pulling back nearly 20% from its all-time high on 5/14, NVIDIA has recovered some ground and is up about +13% YTD, but rival Advanced Micro (AMD) is up +160% and Intel (INTC) is up +200% over the same timeframe, with forward P/Es around 75x and 125x, respectively. More broadly, according to Morgan Stanley, the P/E premium for the MAG7 versus the other S&P 493 has compressed from above 30% to roughly 10%. I suppose investors don’t see how it can continue to achieve such amazing growth and huge margins, which are attracting more competition in the space. Regardless, analysts continue to raise estimates, and NVIDIA should remain a growth juggernaut for the foreseeable future—particularly with hyperscaler capex (much of which buys NVIDIA products) projected to reach $1 trillion in 2027.

Incredibly, although NVIDIA lost around $1 trillion in market cap during its May-June correction, it is now back above $5 trillion in market cap and is the world’s largest company—on par with Germany’s entire nominal GDP, which is the third-largest economy in the world behind the US and China. NVIDIA represents about 8.5% of the S&P 500 index market cap, and it is larger than: 1) the entire Russell 2000 small cap index ($3.5 trillion), 2) 6 of the world’s top 10 stock exchanges (including UK, France, Italy, India, and Spain); 3) 6 of the 11 sectors of the S&P 500 individually; and 4) the combined market cap of the S&P 500’s Materials, Real Estate, and Utilities sectors.

Broadening beyond the market’s biggest stocks is well in motion. Both the Russell 2000 small cap index (+20% YTD) and the Dow Jones Transportation Average (+18% YTD) have had their best start to a year since 1991. Financials, Healthcare, and Industrials all displayed outperformance versus the broad S&P 500 during June. Corporate profitability has been solid across industries, reflecting resilient demand, disciplined cost management, technological innovation, and sustainable productivity gains—not to mention the trillions of dollars in capex for the gradual onshoring/reshoring of manufacturing, much of it already underway. Net corporate income now accounts for 12.4% of GDP.

As I write about regularly, the outlook for inflation continues to improve, particularly given the many underlying global disinflationary trends. This week brings the June CPI/PPI numbers, which I expect will be lower—although the resumption this month in hostilities in Iran and the resultant jump in oil and gasoline prices might signal some inflationary pressures for the July metrics and cause investors (and the Fed) to hold off on any celebration. Notably, seven OPEC+ countries (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman) agreed to increase oil production by a combined 188,000 barrels per day starting in August. But beyond that announcement, supply chains have rapidly diversified in response to the Strait of Hormuz bottleneck—and what the International Energy Agency (IEA) has called “the largest supply disruption in history”—such that it is no longer strangling the global economy, as I discussed in my April post. Indeed, this was long overdue as Iran has not been a reliable observer of the “right of transit passage” in narrow international straits under the UN Convention on the Law of the Sea (UNCLOS) in 47 years.

In my full commentary below, I discuss the divergence between poor consumer sentiment versus strong advisor sentiment and a rising stock market, as well as the shift in focus from both the federal government and institutional investors into hard assets and infrastructure. Moreover, through the end of this decade and likely beyond, I expect to see smaller government and less low-ROI government spending in favor of more high-ROI capital allocation from an unleashed private sector as the primary engine of organic economic growth through fiscal support like favorable tax policy, deregulation, and other supply-side incentives for reshoring/onshoring to increase productive capacity.

This should lead to strong real GDP growth, a peace dividend, rising productivity and a resumption in other disinflationary trends that bring back inflation under 2.5%, and a new “hands-off” Federal Reserve under new chairman Kevin Warsh that aims for less market intervention and does not fear that robust economic growth (aka “overheated” or “above trend”) fuels inflation. Instead, Warsh believes as I do that inflation in general is driven by excessive monetary expansion and deficit spending (including massive spending bills, “helicopter money,” and QE), rather than by a strong and productive private economy.

As such, I still think the S&P 500 might hit 8,000 by year end, although I also think gold, silver, copper, and bitcoin remain long-term accumulation plays, even though they might see further near-term headwinds (e.g., war, a hawkish Fed, and a strong dollar). Given the market broadening beyond the Big Tech titans, and assuming the Fed does not become overly hawkish, we continue to see opportunities in active stock selection, small caps, and bond-alternative dividend payers.

Indeed, Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios have been largely outperforming their benchmarks. Our latest Q2 2026 Baker’s Dozen Portfolio launched on 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across eight business sectors. It remains in primary market until Friday 7/17, and then the new Q3 2026 Baker’s Dozen launches on Monday 7/20. And, as a reminder, our Earnings Quality Rank (EQR) is licensed as a quality prescreen to the actively managed, low-beta First Trust Long-Short ETF (FTLS), which now has over $2.4 billion in AUM.

Sabrient employs a variety of fundamental financial factors in our quantitative models and portfolio selection process. Sabrient Scorecards for Stocks and ETFs are investor tools that provide access to several of our proprietary models for idea generation and portfolio monitoring. To learn more, I invite you to visit https://MoonRocksToPowerStocks.com where you can download founder David Brown’s latest book (an Amazon international bestseller) and 2 bonus reports (on investing in the Future of Energy and Space Exploration)—all in PDF format—and start subscribing to the Scorecards, which make David’s process easy for idea generation and portfolio monitoring. They include our Top 30 stocks each week for 4 distinct investing strategies—Growth, Value, Dividend, and Small Cap. To go straight to the Scorecard subscription, go to: https://www.moonrockstopowerstocks.com/sabrient-scorecard

Here is a link to this post in printable PDF format. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

Quick note: Sabrient’s new Small Cap Growth 52 Portfolio just launched on 6/17 as a 15-month portfolio holding 43 stocks across a range of sectors. It offers an alpha-seeking alternative to the broad small-cap indexes. Notably SCG 46 is the next to terminate on 7/22, and it currently shows a gross total return of +81% vs. +48% for its benchmark S&P SmallCap 600 Growth (SLYG), as well as 61% for Russell 2000 Small Caps (IWM), and +43% for S&P 500 (SPY), as of 6/22.

Overview

The resilient bull market continues to be powered by a compelling combination of technological innovation, robust corporate earnings, resilient consumer spending (despite energy and supply-driven inflationary pressures), and investor optimism around productivity-driven economic growth, despite ongoing macro uncertainties (there’s always something). Notably, the April rally off the market correction was broad-based, then May saw a marked narrowing with Tech the clear leader while most other sectors struggling (as bond yields surged, which hurts interest-rate sensitive industries), and now June has the market resuming its broadening efforts, as evidenced by price action (including a new high for the Russell 2000 small caps) and a convergence in forward P/E multiples (e.g., cap-weight S&P 500 falling, equal-weight S&P 500 and Russell 2000 small caps rising).

In my full commentary below, I discuss:

1. Relative valuations and the SpaceX-led parade of mega-IPOs on tap
2. GDP, inflation, jobs, and productivity
3. Fed policy in the new Kevin Warsh chairmanship
4. AI backlash, the realities, and how to address it
5. Datacenter power demand and the NIMBY problem
6. My final comments section on government versus private sector capital allocation and ROI
7. Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas

As I discussed in my May post, valuations in the broad market indexes have been falling even as the market has surged, as earnings surged at an even faster rate. The equal-weight indexes have outperformed their cap-weight brethren, most notably in the Tech sector, with the MAG-7 badly underperforming the aggregate of everyone else in the sector. Who are the new leaders? Those benefiting from all the hyperscalers’ capex, including names like Sandisk (SNDK), Western Digital (WDC), Seagate Technology (STX), Micron (MU), Broadcom (AVGO), Dell (DELL), Vertiv (VRT), Quanta Services (PWR), EMCOR (EME), Arista Networks (ANET), Bloom Energy (BE), Comfort Systems (FIX), and Sterling Infrastructure (STRL)—many of which have been holdings in Sabrient’s quarterly Baker’s Dozen portfolios.

With the splashy IPO debut of Elon Musk’s SpaceX (SPCX), there are now 12 companies in the $1 trillion market cap club as of 6/19 [including lone non-Tech name Berkshire Hathaway (BRK-B]. And given the rest of the mega-IPO lineup expected this year, some commentators are suggesting a new Big Tech-leadership acronym, such as “MANGOS”—Meta, Anthropic, NVIDIA, Google, OpenAI, and SpaceX. Or the “AI Big 10” that adds Micron, AMD, and Broadcom to the existing MAG-7.

Many of the main headwinds of H1 seem to be finding resolution. The Iran conflict is apparently winding down, and oil price has tumbled from around $105/bbl at its May peak to below $75/bbl (front-month futures contract for WTI on NYMEX), which soon will be reflected in inflation metrics. Consumer spending and retail sales have held up despite falling real wage growth, and now the extremely poor consumer and investor sentiment metrics are showing nascent signs of improvement—although still far from the euphoria or “irrational exuberance” of the dot-com era. Also, the huge SpaceX IPO hit the market without any notable damage.

Overall, I still think fundamental tailwinds outweigh headwinds as investors position for continued AI progress, robust capex for AI, reshoring, and re-industrialization, looser Fed monetary policy, resurgence in global liquidity growth, and One Big Beautifull Bill Act (OBBBA) policies fully kicking in with its pro-growth policies like tax reform, deregulation, smaller government, pro-energy protocols, and broad support for the private sector to retake its rightful place as the primary engine of growth via re-privatization, reshoring, and re-industrialization, with much more efficient capital allocation and ROI than government.

Furthermore, this should continue to attract foreign capital into the US (“shadow liquidity,” much of which is not counted in M2), cut the debt and deficit-to-GDP ratio, and unleash organic private sector growth. Today’s valuations are reasonable, particularly given rising corporate earnings forecasts (now at +23% YoY for CY2026), but future stock valuations likely will be driven more by rising earnings and ROI than by AI hope-driven multiple expansion, particularly given the lingering macro uncertainties and the risk of higher interest rates.

In addition, aside from the oil and supply-driven disruptions that have temporarily goosed inflation metrics, many disinflationary trends are still in place, including the secular implementation of AI and automation, rising productivity, falling shelter costs, the deflationary impulse from a struggling China, a stable/rising dollar (up nearly 5% YTD), and slow M2 growth (about 4.7% vs. last year and 3.5% annualized over the past 3 years, vs. 6.0% pre-pandemic average since 1960). So, as supply chains are repaired and rerouted (as I discussed in my April post) and as oil prices and inflation recede, we could see some multiple expansion—to perhaps as high as 24x on the S&P 500 (after the recent contraction to below 22x on a next-12-months basis)—which would further support stocks. Indeed, the market seems to be setting up the next up leg. Every dip has been a buying opportunity. According to InvesTech Research, “Margin Debt as a percentage of nominal GDP shot up 9% in May, reaching a new all-time high.”

Q1 earnings reporting season was stellar, with robust YoY earnings growth, margins, and productivity, plus rising forward guidance and analyst earnings forecasts. Blended EPS growth across sectors was up 28% in Q1, led by Tech sector at 54%. Revenue growth was 11%, led by Tech at 16%. Profit margins were 15%, led by Tech at 29%. But because EPS growth has exceeded price performance, the P/E multiple has shrunk. The S&P 500 started the year at 6,845 and closed last week at 7,500. The latest Wall Street consensus for S&P 500 operating EPS is about $339 for 2026 (implied P/E of 22.1x based on $7,500 price) and $392 for 2027 (forward P/E of 19.1x on current price). Both are roughly 10% higher than at the start of the year. An official resolution to the Iran conflict and supply shock could allow for some multiple expansion, perhaps pushing the forward P/E to 24x—which implies the S&P 500 Index hitting 8,000 by year-end 2026 and potentially 9,300 by year-end 2027. Are these realistic targets? Not out of the question, in my view, although bouts of volatility along the way surely should be expected—perhaps severe pullbacks as price stretches from moving averages (like a rubberband).

As the S&P 500’s concentration in Big Tech has grown, its dividend yield has compressed to below 1.0%—reminiscent of the late-1990s and well below its multi-decade average around 1.7%—mainly because those high-growth Big Tech companies that dominate the cap-weight index don’t need to pay dividends to attract investors. Instead, investors are willing to pay up for strong growth and high margins, increasingly discounting a world in which AI becomes deeply embedded in business operations in a long-term secular investment cycle rather than short-term cyclical trend. And this is in spite of the elevated benchmark 10-year Treasury yield around 4.5%, which normally would suppress valuation multiples (on a discounted cash flow basis). Although Big Tech is largely immune to interest rate volatility, the smaller companies—into which the market is seeking to broaden—are not.

Furthermore, many uncertainties remain. Investors are concerned about the worrisome inflation prints, Fed policy under the new chairmanship, and the concise-but-vague MOU with Iran. Moreover, the long stretch of years in which demand for US stocks has far outstripped supply (“scarcity”) seems to be suddenly reversing. The line-up of mega-IPOs this year, pre-IPO shares coming out of lock-up, and Big Tech’s shift from using its massive cash flow for share buybacks to supplementing cash with new share issuances to instead fund historic levels of AI-related capex for datacenters, advanced compute hardware (chips, memory, servers), networking, and power infrastructure. According to Michael Gayed, the four largest hyperscalers (Meta, Alphabet, Microsoft, Amazon) spent $416 billion on capex in 2025 and have projected 2026 capex of $725 billion.
 
Concurrently, there is concern about Big Tech earnings quality and circular financing (e.g., NVIDIA investing in its customers who in turn buy NVIDIA’s GPUs), not to mention speculation on how soon all this massive AI spend will pay off (i.e., ROI) and what happens if and when the capex firehose dials down or shuts off. However, as the engraving in every convex passenger-side car mirror reminds us, “Objects in the mirror may be closer than they appear,” which certainly seems to be the case with AI as fundamentals are evolving much faster and impacting workflows much sooner than most anyone expected.

As for the Fed’s increasingly hawkish stance and rising odds of a rate hike (like the ECB just instituted), my view is that a hike won’t reduce the oil or food prices that are driving up the inflation metrics unless it induces an economic recession, which is not what the Fed or anyone wants to see. Assuming the Iran conflict is indeed coming to an end, inflation and interest rates likely have topped, with disinflationary structural trends resuming control and bonds catching a bid.

I remain of the belief that interest rate-sensitive segments of the economy, including housing, homebuyers, small businesses, and lower-income consumers, are already struggling with current financing and mortgage rates, offset only by the locked-in low interest rates from 2020-21, in a K-shaped economy, with higher income people doing well and spending, while lower income is being squeezed. For instance, higher income households have not reduced their driving habits at all, while most others have, and teenagers are having a hard time finding summer jobs due to all the older workers who have re-entered the workplace to supplement their retirement income. Moreover, the still-solid GDP growth metrics have been overly reliant on the combination of the AI race and its massive infrastructure spending, financed mostly on Big Tech cash flow than debt, plus unsustainable levels of fiscal deficit spending—i.e., around $1.9 trillion or 5.8% federal deficit-to-GDP, which includes $1 trillion in interest payments on 100% publicly held federal debt-to-GDP (and 123% total debt-to-GDP).

Notably, if you look solely at the primary deficit (excluding interest on debt), the ratio to GDP is 2.6% (20.1% spending minus 17.5% total revenue), which exceeds the 50-year historical average of 1.7% primary deficit-to-GDP ratio. If any of this spending slows, recessionary conditions might follow. In other words, we need all segments of the economy to flourish, and that can be supported by lower rates. And by the way, elevated inflation helps “inflate away” the debt as long as growth in real (after-inflation) GDP is positive (preferably strongly positive, like 2.5% or more) and exceeds growth in deficit spending, and interest rates remain contained (including any financial repression or yield curve control).

Having a hyper-financialized global economy means that rising rates could cripple debt-addicted businesses, governments (including our own federal government), and the housing market (which is critical for a healthy consumer). Sure, mortgage rates have been much higher in the past, but home prices today are based on a lower baseline of post-GFC easing and low rates. And given recent strengthening of the dollar, some emerging market economies with dollar-denominated debt may be forced into default. In other words, today’s global financial system simply can’t handle higher US interest rates.

Given the market broadening beyond the Big Tech titans, and assuming the Fed does not become overly hawkish, we continue to see opportunities in active stock selection, small caps, and bond-alternative dividend payers. Indeed, Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios have been largely outperforming their benchmarks. Our latest Q2 2026 Baker’s Dozen Portfolio launched on 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across eight business sectors. After two months, it is already off to a good start, up +9.5% vs. +5.1% for SPY and +3.6% for equal-weight S&P 500 (RSP), as of 6/22. Notably, last year’s Q1 2025 Baker’s Dozen terminated on 4/20 with a gross total return of +46.7% vs. +20.3% for SPY, and the next-to-terminate Q2 2025 portfolio is up +61% vs. +43% for SPY and +32% for RSP. And, as a reminder, our Earnings Quality Rank (EQR) is licensed to the actively managed, low-beta First Trust Long-Short ETF (FTLS) as a quality prescreen. FTLS now has $2.4 billion in AUM.

Sabrient employs a variety of fundamental financial factors in our quantitative models and portfolio selection process. Sabrient Scorecards for Stocks and ETFs are investor tools that provide access to several of our proprietary models for idea generation and portfolio monitoring. To learn more, I invite you to visit https://MoonRocksToPowerStocks.com where you can download founder David Brown’s latest book (an Amazon international bestseller) and 2 bonus reports (on investing in the Future of Energy and Space Exploration)—all in PDF format—and start subscribing to the Scorecards, which make David’s process easy for idea generation and portfolio monitoring. They include our Top 30 stocks each week for 4 distinct investing strategies—Growth, Value, Dividend, and Small Cap. To go straight to the Scorecard subscription, go to: https://www.moonrockstopowerstocks.com/sabrient-scorecard

Here is a link to the post in printable PDF format. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Click here to continue reading my full commentary....

  by Scott Martindale
  CEO, Sabrient Systems LLC

 Overview

In Part 3 of my 3-part commentary on Energy, I close the series by discussing these topics: 1) Solving the US grid fragility problem, 2) The future is nuclear, 3) Rare earth elements, 4) Superconductors, and 5) Investment opportunities. Then I close as usual with Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, and current positioning of our sector rotation model.

In Part 1 of my 3-part commentary, I discussed the following topics: 1) A brief history of energy, 2) Fossil fuels remain dominant today, and 3) The push for renewables. If you missed it, you can read it here at Sabrient.com.

And in Part 2, I discussed: 1) Green legislation and subsidies encounter roadblocks, 2) Europe hitting a breaking point, and 3) Surging power demand from AI and other new technologies. If you missed it, you can read it here.

To reiterate, I am writing this special 3-part series on Energy because: 1) it is the lifeblood of an economy, 2) it is a key component of inflation, 3) AI applications and datacenters are expected to surge global demand for electricity in the face of an already overburdened power grid, and 4) low energy costs benefit all aspects of the economy and raise our GDP growth rate, thus allowing us to more quickly grow our way out of debt rather than having to resort to austerity measures. In summary, it is essential that we have abundant, affordable, reliable, equitable, secure, and clean power generation, and the key energy sources to achieve that are natural gas today and nuclear in the longer term.

I began my professional career with Chevron Corporation, serving as a civil/structural design engineer and environmental compliance engineer for offshore oil & gas production, as well as senior analyst and operations manager in the oil shipping segment. I continue to follow the Energy sector to this day.

By the way, Sabrient’s 13th annual Forward Looking Value 13 portfolio launched on 8/15 with a value and small/mid-cap bias, as an alpha-seeking alternative to the S&P 500 Value Index (SPYV). This may be a timely investment in that Fed rate cuts this fall should be favorable for value stocks and small caps, which frequently are capital intensive and carry significant debt as part of their capital structure. Moreover, given the striking divergence in growth over value and large over small caps, the time may be ripe for mean reversion and market rotation into value and small/mid-caps.

Our other portfolios in primary market include Q3 2025 Baker’s Dozen which launched on 7/18, Dividend 53 which launched on 8/8 with a yield of 4.0%, and Small Cap Growth 47 which launched on 7/16. All represent alpha-seeking alternatives to passive broad-market benchmarks.

Click HERE for a link to this post in printable PDF format. As always, please email me your thoughts on this article, and feel free to contact me about speaking at your event!

Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

 Overview

In Part 1 of my 3-part commentary, I discussed the following topics: 1) A brief history of energy, 2) Fossil fuels remain dominant today, and 3) The push for renewables. In case you missed it, you can read it here at Sabrient.com.

In today’s Part 2 below, I discuss: 1) Green legislation and subsidies encounter roadblocks, 2) Europe has hit a breaking point, and 3) Surging power demand from AI and other new technologies. Then I close as usual with Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, and current positioning of our sector rotation model.

And next week in Part 3, I will discuss: 1) Solving the US grid fragility problem, 2) The future is nuclear, 3) Rare earth elements, 4) Superconductors, and 5) Investment opportunities. So, watch for those next two emails.

To reiterate, I am writing this special 3-part series on Energy because: 1) it is the lifeblood of an economy, 2) it is a key component of inflation, 3) AI applications and datacenters are expected to surge global demand for electricity in the face of an already overburdened power grid, and 4) low energy costs benefit all aspects of the economy and raise our GDP growth rate, thus allowing us to more quickly grow our way out of debt rather than having to resort to austerity measures. In summary, it is essential that we have abundant, affordable, reliable, equitable, secure, and clean power generation, and the key energy sources to achieve that are natural gas today and nuclear in the longer term.

I began my professional career with Chevron Corporation, serving as a civil/structural design engineer and environmental compliance engineer for offshore oil & gas production, as well as senior analyst and operations manager in the oil shipping segment. I continue to follow the Energy sector to this day.

By the way, Sabrient’s latest Q3 2025 Baker’s Dozen launched on 7/18. Small Cap Growth 47 launched on 7/16 as an alpha-seeking alternative to the Russell 2000 Index (IWM) for small cap exposure. The new Dividend 53 launched on 8/8. And the annual Forward Looking Value portfolio launches this Friday 8/15 as an alpha-seeking alternative to the S&P 500 Value Index (SPYV).

Click HERE for a link to this post in printable PDF format. As always, please email me your thoughts on this article, and feel free to contact me about speaking at your event!

Read on….

 
  by Scott Martindale
  CEO, Sabrient Systems LLC

I am writing this special 3-part series on Energy because: 1) it is the lifeblood of an economy, 2) it is a key component of inflation, 3) AI applications and datacenters are expected to surge global demand for electricity in the face of an already overburdened power grid, and 4) low energy costs benefit all aspects of the economy and raise our GDP growth rate, thus allowing us to more quickly grow our way out of debt rather than having to resort to austerity measures. In summary, it is essential that we have abundant, affordable, reliable, equitable, secure, and clean power generation, and the key energy sources to achieve that are natural gas today and nuclear in the longer term.

I began my professional career with Chevron Corporation, serving as a civil/structural design engineer and environmental compliance engineer for offshore oil & gas production, as well as senior analyst and operations manager in the oil shipping segment. I continue to follow the Energy sector to this day.

Key Points:

1.      Global energy consumption, largely driven by hydrocarbons, continues to increase. Access to affordable energy is fundamental to economic health, supporting GDP growth, elevating living standards, reducing poverty, mitigating inflationary pressures, and enabling debt alleviation through economic expansion rather than austerity.

2.      Advancements in artificial intelligence, automation, and electrification are anticipated to transform the economy and society primarily through productivity improvements. However, these trends will also contribute to rising global power demand, placing additional strain on already burdened power grids.

3.      In the near term, hydrocarbons remain the most reliable and affordable fuel source, with natural gas being the cleanest and most efficient option. This is why global hydrocarbon consumption persists in its upward trajectory despite significant capital investments and government subsidies directed toward wind and solar initiatives.

4.      Renewable energy sources promoted by governments—primarily wind and solar—exhibit lower energy density and conversion efficiency, and their intermittent nature necessitates battery storage and backup generation. These challenges can result in unreliability, grid instability, higher costs, suboptimal returns on investment, and continued reliance on government subsidies. Furthermore, as renewables cannot fully replace fossil fuels for reliable baseload power, they introduce redundancy that greatly increases the overall cost and complexity of power generation.

5.      Looking ahead, it is improbable that fossil fuel reserves alone will sustain eternal economic growth. Nuclear energy, particularly emerging low-emission low-waste fission technologies using thorium or high-assay low-enriched uranium (HALEU), is poised to play a critical role, including small modular reactors (SMRs). But ultimately, nuclear fusion—having zero greenhouse gas emissions, minimal hazardous waste, and an unlimited fuel source (ocean water)—represents the long-term “holy grail” of sustainable energy production.

6.      The growing electrification of the economy is increasing dependence on materials such as rare earth elements (REEs), which are vital components in wind turbines, electric vehicles, and photovoltaic cells. Additionally, superconductive materials like graphene may enhance efficiency and minimize transmission losses. Technology futurist George Gilder predicts that future datacenters could be consolidated into single graphene wafers, potentially eliminating the need for hyperscale cloud infrastructure.

7.      Regarding investment opportunities, I identify some of the key industry players, accessible via both individual stocks and exchange-traded funds (ETFs).

In Part 1 of my 3-part commentary below, I discuss the following topics: 1) A brief history of energy, 2) Fossil fuels remain dominant today, and 3) The push for renewables. Then I close as usual with Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, and current positioning of our sector rotation model.

Coming up next week in Part 2, I will discuss: 1) Green legislation and subsidies encounter roadblocks, 2) Europe hitting a breaking point, and 3) Surging power demand from AI and other new technologies. And then the following week in Part 3, I will discuss: 1) Solving the US grid fragility problem, 2) The future is nuclear, 3) Rare earth elements, 4) Superconductors, and 5) Investment opportunities. So, watch for those next two emails.

By the way, Sabrient’s latest Q3 2025 Baker’s Dozen launched on 7/18. Small Cap Growth 47 launched on 7/16 as an alpha-seeking alternative to the Russell 2000 for small cap exposure. And the current Dividend 52 will close out its time in primary market this Thursday 8/7. It is a growth & income strategy with a current yield of 3.31%. Note: The new Dividend 53 will launch this Friday 8/8.

Click HERE for a link to this post in printable PDF format. And as always, please email me your thoughts on this article, and feel free to contact me about speaking on any of these topics at your event! 

Read on….

  
  by Scott Martindale
  CEO, Sabrient Systems LLC
  
 Overview

As we close out H1 2025, markets seem eager to press higher on optimism about imminent fiscal stimulus and monetary policy support during H2—plus perhaps a “peace dividend” thrown in. Of course, investors at home and abroad know that President Trump will pull out all stops to demonstrate meaningful successes in raising organic economic growth and jobs creation, fostering an affordable and reliable energy supply for an electricity-hungry future, and leveraging trade negotiations to open up overseas markets while shrinking the debt/GDP and deficit/GDP ratios over the next 12 months. Otherwise, he risks a catastrophic loss in the mid-term congressional elections—which means his political opponents will be impeding him every step of the way in an effort to make that loss happen.

I had been expecting elevated volatility during H1 as the economy faced a gauntlet of challenges before surging to new highs in H2, but sanguine retail investors (with a healthy dose of FOMO) have been too eager to wait it out. Instead, they bought the April dip and never looked back, seemingly confident that my optimistic scenario would play out. And then the momentum-driven algos jumped in, followed by the institutional money. The Invesco S&P 500 High Beta ETF (SPHB) is up nearly 50% since the “Liberation Day” selloff, reflecting major risk-on behavior. Foreign capital is returning as well after a brief period of rebalancing, hedging, and “tariff paralysis.”

But, with lingering macro uncertainties and valuations seemingly “priced for perfection,” caution is warranted. Inflation and jobs metrics have been softening, in spite of what the headline numbers and MSM might suggest, as I discuss in greater depth in today’s post. The current inflation trend, as illustrated by the rolling 3-month annualized month-over-month (MoM) metrics rather than looking back 12 months to last year’s price index, shows Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI) falling to just +1.08% and +1.01%, respectively. And regarding jobs growth, if you look under the hood of last week’s reports, private sector hiring has been quite weak, with the headline numbers bolstered by government hiring (at the state and local level, while federal jobs shrink) and government-supported sectors, like healthcare and education.

Of course, some of this reluctance to hire can be chalked up to the lack of clarity around trade deals, tariffs, inflation, the One Big Beautiful Bill Act (OBBBA), and Fed policy, but much of this is clearing up. For example, now that the OBBBA has been signed into law, we know the new rules on tax rates, subsidies, and incentives. Moreover, the trade deals are gradually coming to fruition. However, the FOMC might continue to lay low in “watch and wait” mode to see how the economy and inflation respond rather than cut rates, which leaves Fed policy intentions murky.

I discuss both inflation and jobs in greater depth in my full commentary below, and I again make the case that the FOMC should have a terminal/neutral fed funds rate 100 bps lower than today’s 4.33% effective rate. Bond yields have normalized with the 10-year Treasury now around 4.40%, which is back to its levels last November to flatten the yield curve, and the 2-year is around 3.90%. Both rates are signaling to the FOMC they should cut, and in fact the Fed’s own long-run estimate for the fed funds rate is 3.0%. The market needs lower interest rates in tandem with business-friendly fiscal policy, including a 5.0% 30-year mortgage rate and a weaker dollar, to support US and global economies, to allow other central banks to inject liquidity, to avert global recession and credit crisis, and to relieve indebted consumers and businesses.

As Real Investment Advice has opined, “…if interest rates drop by just 1%, this could reduce [federal] spending by $500 billion annually, helping to ease fiscal pressures, [and] the coming strategic investments, workforce development, and sustainable energy policies could improve economic outcomes while resolving deficit concerns.” I agree.

So, I believe the Fed remains behind the curve as it worries about tariffs and phantom inflation—which the FOMC sees as a lurking boogeyman, like frightened children lying wide-eyed awake in their beds at night, expecting it to pounce at any moment. But as I continually pound the table on, tariffs are actually disinflationary (in the absence of a commensurate and offsetting increase in income). And more broadly, I believe inflation has resumed its 40-year (1980-2020) secular downtrend, as I discuss in my market commentary below.

Famed investor, co-founder of PIMCO, and “Bond King” Bill Gross argues that the growing federal deficit, elevated bond supply, and a weak dollar likely will keep inflation above 2.5% and create headwinds for bonds. However, while we both like US equities (even at today’s valuations, which I discuss in greater detail below), I see the outlook for bonds differently. Now that we have some clarity on the OBBBA and the debt ceiling, foreign investors and US consumers and businesses know much more about the rules they will be playing under.

Capital tends to flow to where it is most welcome and earns its highest returns, so I think the recent tide of foreign capital flight leaving the US will reverse, helping the dollar find a bottom and perhaps strengthen a bit, which based on historical correlations would suggest higher bond prices (lower yields, despite elevated issuance in the near term) and perhaps lower gold prices. However, without the de facto boost to global liquidity of a weakening dollar, the Fed will have to step up and provide that liquidity boost, such as by lowering interest rates and implementing “stealth QE” (such as through reduced bank reserve requirements) to encourage lending and boost velocity of money (M2V), which has recently stagnated.

Most any foreign investor will tell you there is no other place in the world to invest capital for the innovation and return on shareholder capital than the US, given our entrepreneurial culture, technological leadership in disruptive innovation, strong management and focus shareholder value, low interest-rate exposure, global scalability, wide protective moats, and our reliable and consistently strong earnings growth, free cash flow, margins, and return ratios, particularly among the dominant, cash flush. So, I continue to like US equities over international equities for the longer term (other than a simple mean-reversion trade).

Hindered by its quasi-socialist policies, Europe doesn’t come close to the US in producing game-changing technologies, opportunities, and prosperity for itself and the world at large. In my view, it lacks our level of freedom, openness, dynamism, and incentive structures. And as for China’s unique “capitalism with Chinese characteristics,” although its authoritarian rule, homogenous society, and obedient culture helps ensure broad unity and focus on common goals, its system is still far inferior when it comes to freedom of thought, entrepreneurship, and innovation, in my view. Despite America’s inequalities and inadequacies, there is no better country on earth for tolerance and opportunity for economic prosperity, and we continue to grow ever more diverse and inclusive—without government programs forcing it to be so.

Moreover, it’s not just the Technology sector that is appealing to investors. As BlackRock wrote in their Q2 2025 Equity Market Outlook, “Commentators will often cite the prevalence of a large number of Tech companies in the U.S. as the driver of U.S. equity dominance. But our analysis points to wider breadth in U.S. quality. Current return on tangible invested capital (ROTIC), a proxy for a company’s ability to allocate capital for optimal profitability, is significantly higher in the U.S. than elsewhere in the world, suggesting quality exists not in pockets but across sectors.”

Indeed, rather than investing in the passive cap-weighted indexes dominated by Big Tech, investors may be better served by active stock selection that seeks to identify under-the-radar, undervalued, high-quality gems. This is what Sabrient seeks to do in our various portfolios, all of which provide exposure to Value, Quality, Growth, and Size factors and to both secular and cyclical growth trends. When I say, “high-quality company,” I mean one that displays a history of consistent, reliable, resilient, durable, and accelerating sales, earnings, and free cash flow growth, rising profit margins, a history of meeting/beating estimates, high capital efficiency and ROI, solid earnings quality, a strong balance sheet, low debt burden, competitive advantage, and a reasonable valuation compared to its peers and its own history.

These are the factors Sabrient employs in selecting our Baker’s Dozen, Forward Looking Value, Dividend, and Small Cap Growth portfolios, which are packaged and distributed as UITs by First Trust Portfolios. (By the way, the new Q3 Baker’s Dozen and Small Cap Growth portfolios are launching late next week, so these are the final several days to get into the Q2 portfolios launched in April—both of which are performing well versus their benchmarks so far.)

We also use many of those factors in our SectorCast ETF ranking model, and notably, our proprietary Earnings Quality Rank (EQR) is a key factor used in each of our portfolios, and it is also licensed to the actively managed First Trust Long-Short ETF (FTLS) as a quality prescreen. In fact, we have launched our next-generation Sabrient Scorecards, which are powerful digital tools that rank stocks and ETFs using our proprietary factors. You can learn more about them by visiting:
http://HighPerformanceStockPortfolios.com.

In my full commentary below, I discuss in greater depth the trends in inflation, jobs, GDP, and stock valuations, as well as Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, current positioning of our sector rotation model, and several top-ranked ETF ideas. Click HERE for a link to this post in printable PDF format.

By the way, my in-depth discussion of energy and electrical power generation (that I keep teasing) will be released soon. As always, please email me your thoughts on this article, and feel free to contact me about speaking on any of these topics at your event!  Read on….

  by Scott Martindale
  President & CEO, Sabrient Systems LLC

It would be an understatement to say that last week was particularly eventful, what with the elections and FOMC policy decision, plus some impressive earnings announcements. Election Day is finally behind us, and the results sent investors into a fit of stock market FOMO—in one of the greatest post-election rallies ever—while dumping their bonds. Much like the day after President Trump’s win in 2016, the leading sectors were cyclicals: Industrials, Energy, Financials. And then on Fed Day, markets got their locked-in 25-bp rate cut, and the rally kept going across all risk assets, including strengthening the US dollar on the expectation of accelerating capital flight into the US as Trump’s policies, particularly with support from a Republican-led congress, should be quite business-friendly, with lower tax rates and red tape and much less focus on anti-trust lawfare.

So, there was a lot for investors to absorb last week, and this week brings the October CPI and PPI reports. Indeed, the whole world has been pining for clarity from the US—and they got it. And I’m sure no one misses the barrage of political ads and bitter electioneering. Hopefully, it marks the peak in election divisiveness our society will ever see again. Notably, inflation hedges gold and bitcoin have suddenly diverged, with gold pulling back from its all-time high while bitcoin—which can be considered both a dollar hedge and a risk asset for its utility—has continued its surge to new highs (now over $85k as I write!) on the added optimism around Trump’s crypto-friendly stance.

Besides expectations of a highly aggressive 15% earnings growth in the S&P 500 over the next couple of years, venture capital could be entering a boom following four years of difficulty in raising capital. In an interview with Yahoo Finance, Silicon Valley VC Shervin Pishevar opined, “I think there’s going to be a renaissance of innovation in America…It’s going to be exciting to see… AI is going to accelerate so fast we’re going to reach AGI [Artificial General Intelligence, or human-like thinking] within the next 2-3 years. I think there will be ‘Manhattan Projects’ for AI, quantum computing, biotech.”

It all sounds quite appealing, but there’s always a Wall of Worry for investors, and the worry now is whether Trump’s pro-growth policies like reducing tax rates, deregulation, rooting out government waste and inefficiency (i.e., “drain the swamp”) combined with his more controversial intentions like tariffs, mass deportations of cheap migrant labor, and threats to Big Pharma, the food industry, and key trading partners (including Mexico)—in concert with a dovish Fed—will create a resurgence in inflation and unemployment and push the federal debt and budget deficit to new heights before the economy is ready to stand on its own—i.e., without the massive federal deficit spending and hiring we saw under Biden—thus creating a period of stagflation and perhaps a credit crisis. Rising interest rates and a stronger dollar are creating tighter financial conditions and what Michael Howell of CrossBorder Capital calls “a fast-approaching debt maturity wall” that adds to his concerns that 2025 might prove tougher for investors if the Global Liquidity cycle peaks and starts to decline.

But in my view, the end goals of shrinking the size and scope of our federal government and restoring a free, private-sector-driven economy are worthy, and we can weather any short-term pain along the way and perhaps fend off that looming “debt maturity wall.” Nevertheless, given the current speculative fervor (“animal spirits”) and multiple expansion in the face of surging bond yields (i.e., the risk-free discount rate on earnings streams), it might be time to exercise some caution and perhaps put on some downside hedges. Remember the old adage, “Stocks take the stairs up and the elevator down” (be sure to read my recent post with 55 timeless investing proverbs to live by).

In any case, at the moment, I believe the stock market has gotten a bit ahead of itself with frothy valuations and extremely overbought technical conditions (with the major indexes at more than two standard deviations above their 50-day moving averages). But I think any significant pullback or technical consolidation to allow the moving averages to catch up would be a buying opportunity into year-end and through 2025, and perhaps well into 2026—assuming the new administration’s policies go according to plan. As DataTrek Research pointed out, there is plenty of dry powder to buy stocks as cash balances are high (an average of 19.2% of institutional portfolios vs.10-15% during the bull market of the 2010’s).

This presumes that the proverbial “Fed Put” is indeed back in play. Also, I continue to believe that rate normalization means the FOMC ultimately taking the fed funds rate down to a terminal rate of about 3.0-3.5%—although I’m now leaning toward the higher side of that range as new fiscal policy from the “red wave” recharges private-sector growth (so that GDP and jobs are no longer reliant on government deficit spending and hiring) and potentially reignites some inflationary pressures.

This is not necessarily a bad thing. Although inflation combined with stagnant growth creates the dreaded “stagflation,” moderate inflation with robust growth (again, driven by the private sector rather than the government) can be healthy for the economy, business, and workers while also helping to “inflate away” our massive debt. Already, although supply chain pressures remain low, inflation has perked up a bit recently, likely due to rising global liquidity and government spending, as I discuss in detail in today’s post.

So, my suggestions remain: Buy high-quality businesses at reasonable prices, hold inflation hedges like gold and bitcoin, and be prepared to exploit any market correction—both as stocks sell off (such as by buying out-of-the-money put options, while VIX is low) and as they begin to rebound (by buying stocks and options when share prices are down). A high-quality company is one that is fundamentally strong (across any market cap) in that it displays consistent, reliable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, rising profit margins and free cash flow, solid earnings quality, and low debt burden. These are the factors Sabrient employs in selecting the growth-oriented Baker’s Dozen (our “Top 13” stocks), the value-oriented Forward Looking Value, the growth & income-oriented Dividend portfolio, and Small Cap Growth. We also use many of those factors in our SectorCast ETF ranking model. And notably, our Earnings Quality Rank (EQR) is a key factor in each of these models, and it is also licensed to the actively managed, absolute-return-oriented First Trust Long-Short ETF (FTLS).

Each of our key alpha factors and their usage within Sabrient’s Growth, Value, Dividend, and Small Cap investing strategies (which underly those aforementioned portfolios) is discussed in detail in Sabrient founder David Brown’s new book, How to Build High Performance Stock Portfolios, which is now available to buy in both paperback and eBook formats on Amazon.com.

And in conjunction with David’s new book, we are also offering a subscription to our next-generation Sabrient Scorecard for Stocks, which is a downloadable spreadsheet displaying our Top 30 highest-ranked stock picks for each of those 4 investing strategies. And as a bonus, we also provide our Scorecard for ETFs that scores and ranks roughly 1,400 US-listed equity ETFs. Both Scorecards are posted weekly in Excel format and allow you to see how your stocks and ETFs rank in our system…or for identifying the top-ranked stocks and ETFs (or for weighted combinations of our alpha factors). You can learn more about both the book and the next-gen Scorecards (and download a free sample scorecard) at http://DavidBrownInvestingBook.com.

In today’s post, I dissect in greater detail GDP, jobs, federal debt, inflation, corporate earnings, stock valuations, technological trends, and what might lie ahead for the stock market with the incoming administration. I also discuss Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, current positioning of our sector rotation model, and several top-ranked ETF ideas. And be sure to check out my Final Thoughts section in which I offer my post-mortem on the election.

Click HERE to continue reading my full commentary or to sign up for email delivery of this monthly market letter. Also, here is a link to this post in printable PDF format. I invite you to share it as appropriate (to the extent your compliance allows).

  by Scott Martindale
  President & CEO, Sabrient Systems LLC

The S&P 500 rose 20.8% during the first three quarters of 2024, which is its best start since 1997 and the best for any presidential election year in history. Moreover, for perspective, the ratio of US stock market capitalization to the global stock market has risen from 30% in 2009 (following the GFC) to almost 50% today. This has happened despite escalation in multiple wars, numerous catastrophic weather events ravaging the country, a highly contentious election tearing apart friends and families, strapped consumers (after 25%+ cumulative inflation over the past few years), falling consumer confidence, and jobs and GDP growth over-reliant on government deficit spending, with national debt approaching $35.7 trillion and rising $2 trillion/year (as debt carrying costs alone cost over $1 trillion/year). Even over the past several days when oil prices spiked above $75/bbl (on sudden escalation in the Middle East conflict) and bond yields surged (with the 10-year reaching 4.05%), the major indexes continue to hold near their highs.

As investor Howard Lindzon (of StockTwits fame) said the other day, “There is a fear trade happening (e.g., gold and bitcoin) while there is growth trade happening. It’s really mind-boggling.” Indeed, many of the most prominent investors are wary, including the likes of Warren Buffett, Jamie Dimon, and Jeff Bezos, and corporate insider buying has slowed.

I’m not an economist. I started my career as a structural engineer with Chevron Corporation, then earned an MBA in night school and moved into the business side of the company before venturing into the world of investment research. But as a long-time student of the economy and capital markets, combined with my critical-thinking nature and engineering training, I’ve developed a healthy skepticism of numbers presented to me, even from supposedly objective sources like the government. They have to pass the “smell test.”

Of course, the Fed has been basing its monetary policy primarily on metrics calculated by federal agencies regarding inflation, jobs, and GDP. But headline YoY numbers can be illusory—particularly when they are propped up by massive government deficit spending. So, I like to look beyond the headline numbers. For inflation, my skepticism of official numbers (with the long lag times of key components, like shelter cost, and distorted metrics like “owner’s equivalent rent,” which is highly subjective and based on surveys of homeowners) is why I seek alternative metrics like: 1) the annualized rolling 3-month average of month-over-month price changes (which better reflects current trends), 2) a European method (quietly published by the BLS since 2006) called the Harmonized Index of Consumer Prices (HICP), and 3) the real-time, blockchain-based Truflation, which is published daily.

My skepticism was further elevated when I saw the jobs, retail sales, and ISM Services metrics all suddenly perk up in September—right before the election after a lengthy period of decline and contrary to several negative developments like a record divergence between rising consumer credit card debt and falling personal savings and The Conference Board’s Consumer Confidence dropping to the bottom of its 2-year range and showing increasing pessimism about labor market conditions.

On the other hand, it is notable that Truflation also has risen quickly over the past couple of weeks to nearly 2.0% YoY, so could this be corroborating the apparent rise in consumer demand? Could it be that the Fed’s dovish pivot and 50-bps rate cut has suddenly emboldened consumers to start spending again and businesses to ramp up hiring? Or are my suspicions correct such that we are in store for more downward revisions on some these rosy metrics post-election? After all, the last set of major revisions in early September showed not just an over-reliance on government jobs and government-supported jobs (through targeted spending bills), but the August household survey showed 66,000 fewer employed than in August 2023, 609,000 more “”part-time for economic reasons,” and 531,000 more “part time for noneconomic reasons,” which implies 1.2 million fewer full-time jobs in August 2024 versus August 2023.

Then along came the big 254,000 jobs gain in the September report that made investors so giddy last week, and the household survey showed 314,000 more employed workers than in September of last year. However, digging into the numbers, there are 555,000 more “”part-time for economic reasons” and 389,000 more “part time for noneconomic reasons,” which suggests 630 million fewer full-time jobs in September 2024 versus September 2023, so it’s no surprise that the average weekly hours worked also fell. Furthermore, government spending (and the growing regulatory state) continues to account for much of the hiring as government jobs have soared by 785,000 (seasonally adjusted) over this 12-month timeframe, which was the largest month-over-month (MoM) gain on record. Also, workers holding multiple jobs hit an all-time high. And notably, native-born workers have lost 1.62 million net jobs since their peak employment in July 2023 while foreign-born workers have gained 1.69 million over the same period.

Hmmm. I continue to see the GDP and jobs growth numbers as something of a mirage in that they have been propped up by government deficit spending (which our leaders euphemistically call “investment”). As you recall, leading into the September FOMC announcement I had been pounding the table on the need for a 50-bps rate cut, which we indeed got. Many observers, and at least one Fed governor, believe it was a mistake to go so big, but as I discussed in my post last month, recessionary pressures were mounting despite the impressive headline numbers, and the pain felt by our trading partners from high US interest rates and a strong dollar essentially required some agreement among the major central banks, particularly Japan and China, to weaken the dollar and thus allow an expansion in global liquidity without inciting capital flight to the US. And the PBOC soon did exactly that—slashing its reserve requirement ratio (RRR), cutting its benchmark interest rate, and loosening scores of rules regarding mortgages and the property market—which has restrengthened the dollar after its summer decline.

Of course, cutting taxes and regulation is the best way to unleash the private sector, but it's often argued that a tax cut without a corresponding reduction in spending only serves to increase the budget deficit and add to the federal debt. In fact, I saw a Harris campaign commercial with an average guy named “Buddy” lamenting that it’s “not cool” with him that Trump would give “billionaires” a tax break because they should “pay their fair share.” But Buddy and Harris both need to know what DataTrek Research has observed—i.e., since 1960, regardless of individual and corporate tax rates, federal receipts have averaged 17% of GDP. This means that raising taxes stunts GDP growth while cutting taxes boosts GDP growth by leaving more money in the pockets of consumers, business owners, and corporations to spend and invest with the wisdom of a free and diverse marketplace (Adam Smith’s “invisible hand”). In other words, the path to rising tax revenues is through strong economic growth—and the best return on capital comes from the private sector, which has proven itself much more adept at determining the most efficient allocation of capital rather than Big Government’s top-down picking of winners and losers, like a politburo.

Nevertheless, given the Fed’s dovish pivot (and despite the “heavy hand” of our federal government), I continue to expect higher prices by year end and into 2025. Bond credit spreads remain tight (i.e., no fear of recession), and although the CBOE Volatility Index (VIX) is back above the 20 “fear threshold,” it is far from panic levels. So, I believe any “October surprise” that leads to a pre-election selloff—other than a cataclysmic “Black Swan” event—would likely be a welcome buying opportunity, in my view. But besides adding or maintaining exposure to the dominant MAG-7 titans—which provide defensive qualities (due to their disruptive innovation and wide moats) as well as long-term appreciation potential—I think other stocks may offer greater upside as the economic cycle continues its growth run and market rotation/broadening resumes.

So, my suggestions are to buy high-quality businesses at reasonable prices on any pullback, hold inflation hedges like gold and bitcoin, and be prepared to exploit any credit-related panic—both as stocks sell off (such as by buying out-of-the-money put options while VIX is low) and before they rebound (when share prices are low). Regardless, I continue to recommend high-quality, fundamentally strong stocks across all market caps that display consistent, reliable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, rising profit margins and free cash flow, solid earnings quality, and low debt burden. These are the factors Sabrient employs in selecting the growth-oriented Baker’s Dozen (our “Top 13” stocks), the value-oriented Forward Looking Value, the growth & income-oriented Dividend portfolio, and Small Cap Growth, which is an alpha-seeking alternative to a passive position in the Russell 2000.

We also use many of those factors in our SectorCast ETF ranking model. And notably, our Earnings Quality Rank (EQR) is a key factor in each of these models, and it is also licensed to the actively managed, absolute-return-oriented First Trust Long-Short ETF (FTLS).

Each of our key alpha factors and their usage within Sabrient’s Growth, Value, Dividend, and Small Cap investing strategies (which underly those aforementioned portfolios) is discussed in detail in Sabrient founder David Brown’s new book, How to Build High Performance Stock Portfolios, which is now available for pre-order on Amazon at a special pre-order price.

And in conjunction with David’s new book, we are also offering a subscription to our next-generation Sabrient Scorecard for Stocks, which is a downloadable spreadsheet displaying our Top 30 highest-ranked stock picks for each of those 4 investing strategies. And as a bonus, we also provide our Scorecard for ETFs that scores and ranks roughly 1,400 US-listed equity ETFs. Both Scorecards are posted weekly in Excel format and allow you to see how your stocks and ETFs rank in our system…or for identifying the top-ranked stocks and ETFs (or for weighted combinations of our alpha factors). You can learn more about both the book and the next-gen Scorecards (and download a free sample scorecard) at http://DavidBrownInvestingBook.com.

In today’s post, I discuss in greater detail the current trend in inflation, Fed monetary policy, stock valuations, technological trends, and what might lie ahead for the stock market. I also discuss Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, current positioning of our sector rotation model, and several top-ranked ETF ideas. And be sure to check out my Final Thoughts section with a few off-topic comments on the imminent election and escalating Middle East conflict.

Click here to continue reading my full commentary online or to sign up for email delivery of this monthly market letter. Also, here is a link to this post in printable PDF format. I invite you to share it as appropriate (to the extent your compliance allows).

  by Scott Martindale
  President & CEO, Sabrient Systems LLC

Falling inflation, weak manufacturing activity, cautious consumer sentiment, and sluggish GDP and jobs growth have conspired to elicit a dovish tone from the Federal Reserve and the likely start of a rate cut cycle to avert recession and more jobs losses. I continue to pound the table that the Fed is behind the curve and should have begun to cut at the July meeting.

Why? Well, here are my key reasons:

1. Although official inflation metrics still reflect lingering “stickiness” in consumer prices, my research suggests that real-time inflation is already well below the Fed’s 2% target, as I discuss in detail in today’s post.

2. Last week’s BLS jobs report shows 66,000 fewer employed workers in August 2024 versus 12 months ago after massive downward revisions to prior reports. And if you dig deeper into the August household survey it gets worse, indicating a whopping 1.2 million fewer full-time jobs (yikes!), partially offset by a big growth in part-time jobs.

3. The mirage of modest GDP and jobs growth has been temporarily propped up by unhealthy and inefficient government deficit spending (euphemistically called “investment”) rather than true and sustainable organic growth from a vibrant private sector that is adept at efficient capital allocation. Thus, despite government efforts to “buy” growth, recessionary signals are growing at home and abroad.

4. The burden caused by elevated real interest rates on surging debt across government, business, consumers at home and emerging markets abroad, and the impact of tight monetary policy and a relatively strong dollar on our trading partners must be confronted.

So, a 50-bps cut at the September FOMC meeting next week seems warranted—even if it spooks the markets. As Chicago Fed president Austan Goolsbee said, “You only want to stay this restrictive for as long as you have to, and this doesn’t look like an overheating economy to me.”

A terminal fed funds neutral rate of 3.0-3.5% seems appropriate, in my view, which is roughly 200 bps below the current range of 5.25-5.50%). Fortunately, today’s lofty rate means the Fed has plenty of potential rate cuts in its holster to support the economy while remaining relatively restrictive in its inflation fight. And as long as the trend in global liquidity is upward (which it is once again), then it seems the risk of a major market crash is low.

Regarding the stock market, as the Magnificent Seven (MAG-7) mega-cap Tech stocks continue to flounder, markets have displayed some resilience since the cap-weighted S&P 500 and Nasdaq 100 both topped in mid-July, with investors finding opportunities in neglected market segments like financials, healthcare, industrials, and defensive/higher-dividend sectors utilities, real estate, telecom, and staples—as well as gold (as both a store of value and protection from disaster). However, economic weakness, “toppy” charts, and seasonality (especially in this highly consequential election year) all suggest more volatility and downside ahead into October.

Of course, August was tumultuous, starting with the worst one-day selloff since the March 2020 pandemic lockdown followed by a moon-shot recovery back to the highs for the S&P 500 (SPY) and S&P 400 MidCap (MDY), while the Dow Jones Industrials (DIA) surged to a new high. However, the Nasdaq 100 (QQQ) and Russell 2000 SmallCap (IWM) only partially retraced their losses. And as I said in my August post, despite the historic spike in the CBOE Volatility Index (VIX), it didn’t seem like the selloff was sufficient to shake out all the weak investors and form a solid foundation for a bullish rise into year end. I said that I expected more downside in stocks and testing of support before a tradeable bottom was formed, especially given uncertainty in what the FOMC will do on 9/18 and what the elections have in store.

In addition, September is historically the worst month for stocks, and October has had its fair share of selloffs (particularly in presidential election years). And although the extraordinary spike in fear and “blood in the streets” in early August was fleeting, the quick bounce was not convincing. The monthly charts remain quite extended (“overbought”) and are starting to roll over after August’s bearish “hanging man” candlestick—much like last summer. In fact, as I discussed in my post last month, the daily price pattern for the S&P 500 in 2024 seems to be following 2023 to a T, which suggests the weakness (like last year) could last into October before streaking higher into year end. Anxiety around a highly consequential election on 11/5 (with counting of mail-in ballots likely to last several days beyond that once again) will surely create volatility.

Many commentators believe the Fed is making a policy mistake, but it goes both ways. Some believe the Fed is turning dovish too quickly because inflation is sticky, the jobs market is fine, and GDP is holding up well, so it risks reigniting inflation. Others (like me) think the FOMC is reacting too slowly because the economy, jobs growth, and inflation are weaker than the mirage they seem, masked by inordinate government deficit spending, misleading headline metrics, and political narratives. As Fed Chair Jerome Powell said at the July meeting, “The downside risks to the employment mandate are now real,” and yet the FOMC still chose to hold off on a rate cut. Now it finds itself having to commence an easing cycle with the unwanted urgency of staving off recession rather than a more comfortable “normalization” objective within a sound economy.

Indeed, now that we are past Labor Day, it appears the “adults” are back in the trading room. As I discuss in detail in today’s post, economic metrics seem to be unraveling fast, stocks are selling off, and bonds are getting bought—with the 2-10 yield curve now “un-inverted” (10-year yield exceeds the 2-year). So, let’s get moving on rate normalization. After all, adjusting the interest rate doesn’t flip a switch on economic growth and jobs creation. It takes time for lower rates and rising liquidity to percolate and reverse downward trends, just as it took several months for higher rates and stagnant liquidity to noticeably suppress inflation. Fed funds futures today put the odds of a 50-bps cut at about 27%.

Nevertheless, stock prices are always forward-looking and speculative with respect to expectations of economic growth, corporate earnings, and interest rates, so prices will begin to recover before the data shows a broad economic recovery is underway. I continue to foresee higher prices by year end and into 2025. Moreover, I see current market weakness setting up a buying opportunity, perhaps in October. But rather than rushing back into the MAG-7 stocks exclusively, I think other stocks offer greater upside. I would suggest targeting high-quality, fundamentally strong stocks across all market caps that display consistent, reliable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, rising profit margins and free cash flow, solid earnings quality, and low debt burden. These are the factors Sabrient employs in selecting the growth-oriented Baker’s Dozen (our “Top 13” stocks), the value-oriented Forward Looking Value, the growth & income-oriented Dividend portfolio, and Small Cap Growth, which is an alpha-seeking alternative to a passive position in the Russell 2000.

We also use many of those factors in our SectorCast ETF ranking model. And notably, our Earnings Quality Rank (EQR) is a key factor in each of these models, and it is also licensed to the actively managed, absolute-return-oriented First Trust Long-Short ETF (FTLS) as an initial screen. Each of our alpha factors and their usage within Sabrient’s Growth, Value, Dividend, and Small Cap investing strategies is discussed in detail in Sabrient founder David Brown’s new book, How to Build High Performance Stock Portfolios, which will be published shortly.

In today’s post, I discuss in greater detail the current trend in inflation, Fed monetary policy, and what might lie ahead for the stock market as we close out a tumultuous Q3. I also discuss Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, current positioning of our sector rotation model, and several top-ranked ETF ideas. And be sure to check out my Final Thoughts section with some political comments—here’s a teaser: Democrats have held the presidency for 12 of the past 16 years since we emerged from the Financial Crisis, so all these problems with the economy, inflation, immigration, and global conflict they promise to “fix” are theirs to own.

Click here to continue reading my full commentary online or to sign up for email delivery of this monthly market letter. And here is a link to it in printable PDF format. I invite you to share it as appropriate (to the extent your compliance allows).