Scott Martindaleby Scott Martindale
President, Sabrient Systems LLC

The first two months of 2019 have treated Sabrient’s portfolios quite well. After a disconcerting 3Q2018, in which small-cap and cyclicals-heavy portfolios badly trailed the broad market amid a fear-driven defensive rotation, followed by a dismal Q4 for all stocks, the dramatic V-bottom recovery has been led by those same forsaken small-mid caps and cyclical sectors. All of our 12 monthly all-cap Baker’s Dozen portfolios from 2018 have handily outperformed the S&P 500 benchmark since then, as fundamentals seem to matter once again to investors. Indeed, although valuations can become disconnected from fundamentals for a given stretch of time (whether too exuberant or too pessimistic), share prices eventually do reflect fundamentals. Indeed, it appears that institutional fund managers and corporate insiders alike have been scooping up shares of attractive-but-neglected companies from cyclical sectors and small-mid caps in what they evidently saw as a buying opportunity.

And why wouldn’t they? It seems clear that Q4 was unnecessarily weak, with the ugliest December since the Great Depression, selling off to valuations that seem more reflective of an imminent global recession and Treasury yields of 5%. But when you combine earnings beats and stable forward guidance with price declines – and supported by a de-escalation in the trade war with China and a more “patient and flexible” Federal Reserve – it appears that the worst might be behind us, as investors recognize the opportunity before them and pay less attention to the provocative news headlines and fearmongering commentators. Moreover, I expect to see a renewed appreciation for the art of active selection (rather than passive pure-beta vehicles). However, we must remain cognizant of 2018’s lesson that volatility is not dead, so let’s not be alarmed if and when we encounter bouts of it over the course of the year.

Looking ahead, economic conditions appear favorable for stocks, with low unemployment, rising wages, strong consumer sentiment, and solid GDP growth. Moreover, Q4 corporate earnings are still strong overall, with rising dividends, share buybacks at record levels, and rejuvenated capital investment. So, with the Fed on the sidelines and China desperately needing an end to the trade war, I would expect that any positive announcement in the trade negotiations will recharge the economy in supply-side fashion, as US companies further ramp up capital spending and restate guidance higher, enticing risk capital back into stocks (but again, not without bouts of volatility). This should then encourage investors to redouble their current risk-on rotation into high-quality stocks from cyclical sectors and small-mid caps that typically flourish in a growing economy – which bodes well for Sabrient’s growth-at-a-reasonable-price (GARP) portfolios.

In this periodic update, I provide a market commentary, offer my technical analysis of the S&P 500, review Sabrient’s latest fundamentals-based SectorCast rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. In summary, our sector rankings remain bullish, while the sector rotation model has returned to a bullish posture. Read on…

By Scott Martindale
President, Sabrient Systems LLC

Fear of missing out is suddenly the prevailing sentiment, overwhelming the previously dominant fear of an imminent selloff. I think this is due to a combination of: 1) uncertainty being lifted regarding the election, 2) domestic optimism about the US economy and business-friendly fiscal policies, 3) foreign investors seeing the US as the favored investment destination, 4) the expectation of rising inflation and interest rates rotating capital out of bonds and into stocks, and 5) a cautious but still accommodative Fed. Now that investors can focus on the many positive fundamentals instead of the news headlines, we are seeing healthy market breadth and diverse leadership led by value and small cap stocks rather than just the mega-cap growth stocks (e.g., “FANG”). Such sentiment has been a boon for fundamentals-based portfolios like Sabrient’s. But of course, everyone wants to know, how much further can this rally go? And what happens when it inevitably hits a wall?

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review Sabrient’s weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas. Overall, our sector rankings look slightly bullish as post-election adjustments to sell-side EPS estimates are gaining traction in the model, and the sector rotation model continues to suggest a bullish stance.

smartindale / Tag: ETF, sectors, iShares, volatility, S&P 500, SectorCast, technology, healthcare, Financial, energy, SPY, VIX, IYF, iyw, IYJ, IYZ, IYC, IYK, IYH, IDU, IYM, IYE, SOXX, RWW, SLX, XHS, MORT, RDVY, RYF, WBIF, USD, FDM, SYV, BBH, KBWB / 0 Comments

david trainerHaving too many choices can be intimidating. And there are definitely lots of choices when it comes to ETFs. For example, in the equity market alone, there 30+ technology sector ETFs, 35 "large cap value," and 20 financial ETFs. A very healthy selection abounds for every category of ETF.

dtrainer / Tag: AAPL, acn, FTQ, FXL, GOOG, IGM, IGN, IGV, iyw, MSFT, MTK, ORCL, PNQI, RYT, SKYY, SOXL, SOXX, TYH, USD, VGT, XLK, XSD / 0 Comments

david trainerMost of my research and publishing tends to focus on companies manipulating accounting rules to make their reported earnings look better than the real economic cash flows of their business.

It is unfortunately rare that I find a company whose economic earnings are outpacing the reported accounting results and whose stock is cheap.

dtrainer / Tag: LRCX, QTEC, USD / 0 Comments

david trainerProShares Ultra Semiconductors (USD) is our top pick among the 25 ETFs we analyzed for our 3Q11 update on the “Best & Worst Tech Sector ETFs."

dtrainer / Tag: AAPL, FDN, FXL, GOOG, IGM, IGN, IGV, INTC, iyw, PSI, PSJ, PTF, PXQ, ROM, SKYY, SOXL, TYH, USD, VGT, XLK, XSD / 0 Comments