Baird Market and Investment Strategy
Weekly Market Notes
November 17, 2014
Dow Industrials 17634
S&P 500 2039
Please refer to Appendix – Important Disclosures
Growing Optimism/Short-Term Headwind
Summary
Stock prices grinded higher last week supported by improving economic
Economy: This week’s PPI and CPI reports
expected to show inflation falling 0-1% in October.
fundamentals, low inflation and favorable seasonal trends. The plunge in gasoline
prices is encouraging consumers as evidenced in the latest Reuters/University of
Fed Policy: Falling commodity prices expected
Michigan Consumer Sentiment Survey that climbed to the highest level since July
to keep the Fed sidelined on a rate hike in 2015.
2007. Since the second quarter, oil prices have dropped 29%. Last week
witnessed another steep drop with spot oil trading below $75 for the first time in
Sentiment: Investor psychology moving closer
four years. The decline in energy prices is slowly working its way through the
to extreme optimism.
economy with holiday retail spending expected to be robust. However, the
Strongest Sectors: Health care, consumer
dramatic plunge in oil prices also carries negative implications for the U.S.
staples and technology strongest sectors –
economy. The energy complex has been responsible for many of the betterConsumer discretionary lags despite drop in gas
paying jobs the past four years and has accounted for much of the strength in the
prices.
U.S. economy. Inflation expectations are falling as fast as the decline in oil prices.
This likely trumps the negative implications lower energy prices have on the oil
companies. The decline in commodity prices suggests interest rates will remain
low for much longer and continue to offer significant support for the equity markets deep into 2015.
The stock market, from a seasonal perspective, is poised for further gains in 2014 and 2015. Very short term, however, stocks
enter the new week overbought and overbelieved. This raises the likelihood for a pause in the November rally. Any weakness,
however, is expected to be limited in both time and price. December is one of the strongest months of the year for equities. This
could be attributed, in part, to the fact that investors delay selling winning positions late in the year in order to postpone the tax
liability. January typically is a good month for stocks as new money flows into retirement accounts. Looking further out, seasonal
trends often produce equity outperformance the year before a presidential election. Finally, going back a century or more, years
ending in ‘5’ are almost always an up year for stocks.
Sentiment
Current
Previous
Indication
CBOE 10-Day Put/Call Ratio
Below 80% is bearish; Above 95% is bullish
92%
95%
Neutral
CBOE 3-Day Equity Put/Call Ratio
Below 53% is bearish; Above 64% is bullish
57%
61%
Neutral
VIX Volatility Index
Below 16 is bearish; Above 21 is bullish
13.3
14.0
Bearish
American Association of Individual Investors
Twice as many bulls as bears is bearish; more bears than
bulls is bullish
Bulls:
Bears:
57.9%
19.3%
Bulls:
Bears:
52.7%
15.1%
Bearish
Investors Intelligence (Advisory Services)
55% bulls and/or less than 16% bears is considered bearish
Bulls:
Bears:
55.5%
14.8 %
Bulls:
Bears:
54.6%
15.1 %
Bearish
National Assoc. of Active Investment Mgrs. (NAAIM)
Below 30% is bullish; Above 80% is bearish
85%
78%
Bearish
Ned Davis Research Crowd Sentiment Poll
Extreme Optimism
Extreme Optimism
Bearish
Ned Davis Research Daily Trading Sentiment Composite
Excessive Optimism
Pessimism Fading
Bearish
Bruce Bittles
Chief Investment Strategist
[email protected]
941-906-2830
Weekly Market Notes
RS Ranking
RS
Current
Previous Trend
Health Care
1
**
1
Consumer Staples
2
**
5
Information Technology
3
**
4
Financials
4
**
3
Utilities
5
**
2
Industrials
6
6
Telecom Services
7
9
Sub‐Industry Detail
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
+
Consumer Discretionary
8
7
Materials
9
8
Leaders:
Laggards:
Energy
10
10
Leaders:
Laggards:
Laggards:
HC Distributors; Managed Health Care; Biotechnology
Drug Retail; Food Retail
Personal Products
Data Processing & Outsourced Services; Home Entertainment Software
IT Consulting & Other Services
Residential REITs; Real Estate Services
Human Resources & Employment Services; Airlines; Railroads
Construction & Engineering; Electrical Components & Equipment; Trading Companies & Distributors; Security & Alarm Services
Homebuilidng; Household Appliances; Footwear; Distributors; Home Improvement Retail; Automotive Retail
Automobile Manufacturers; Leisure Products; Casinos & Gaming; Broadcasting; Publishing; Internet Retail
Aluminum; Paper Products
Commodity Chemicals; Diversified Metals & Mining; Gold; Steel
Oil & Gas Drilling; Oil & Gas Equipment & Services; Integrated Oil & Gas; Oil & Gas Exploration & Production
** Denotes Current Relative Strength‐Based Overweight Sectors ** 1 ranking = strongest sector – 10=ranking weakest sector
Monthly Data 11/30/1952 - 11/30/2014
Components of the Reuters/University of Michigan Consumer Sentiment Index
115
110
105
100
95
90
85
80
75
70
65
60
55
50
120
11/30/2014 = 89.4
Consumer Sentiment Index
Source: Haver Analytics, University of Michigan, NDR estimates prior to 1978
11/30/2014 = 103.0
Current Conditions Index
115
110
105
100
95
90
85
80
75
70
65
60
55
50
120
110
110
100
100
90
90
80
80
70
70
60
60
Shaded areas represent
National Bureau of
Economic Research recessions dates.
50
50
105
100
95
90
85
80
75
70
65
60
55
50
45
105
100
95
90
85
80
75
70
65
60
55
50
45
Consumer Expectations Index
11/30/2014 = 80.6
(E0132)
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
 Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at
www.ndr.com/copyright.html
. For data vendor disclaimers refer to
www.ndr.com/vendorinfo/
.
Source: Ned Davis Research
Robert W. Baird & Co.
Page 2 of 3
Weekly Market Notes
Appendix – Important Disclosures and Analyst Certification
This is not a complete analysis of every material fact regarding any company, industry or security. The
opinions expressed here reflect our judgment at this date and are subject to change. The information has
been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.
ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST
The indices used in this report to measure and report performance of various sectors of the market are
unmanaged and direct investment in indices is not available.
Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the
United States Securities and Exchange Commission, FINRA, and various other self-regulatory organizations
and those laws and regulations may differ from Australian laws. This report has been prepared in accordance
with the laws and regulations governing United States broker-dealers and not Australian laws.
Copyright 2014 Robert W. Baird & Co. Incorporated
Other Disclosures
UK disclosure requirements for the purpose of distributing this research into the UK and other
countries for which Robert W Baird Limited holds an ISD passport.
This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2)
of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are
investment professionals and may not be distributed to private clients. Issued in the United Kingdom by
Robert W. Baird Limited, which has an office at Finsbury Circus House, 15 Finsbury Circus, London EC2M
7EB, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the
Financial Conduct Authority requirements, this investment research report is classified as objective.
Robert W Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services
license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may
differ from Australian laws. This document has been prepared in accordance with FCA requirements and not
Australian laws.
Robert W. Baird & Co.
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