Download Report

Baird Market and Investment Strategy
Weekly Market Notes
December 15, 2014
Dow Industrials 17280
S&P 500 2002
Please refer to Appendix – Important Disclosures
Summary
Christmas Rally Remains in the Forecast
The equity markets suffered the worst weekly decline in three years last week. The
basis for the drop in stock prices was the growing belief that plunging oil prices are
a harbinger of economic trouble. The concern is that a recession and deflation in
Europe could spread to our shores. Stocks entered the month with high
expectations. December, historically, is one of the strongest months for stocks of
the year. The good news is that last week’s soaring volatility has squeezed out
much of the investor optimism found earlier in the month. The CBOE Volatility Index
nearly doubled last week, indicating that fear has entered the stock market. In
addition, the demand for put options exploded, triggering short-term buy signals
(puts are bought in anticipation of a decline in stock prices). Using contrary opinion,
the probability of a year-end rally remains high. Most of the gains in the final month
typically occur late in the month with rallies often beginning just before Christmas.
The risk in the stock market the remaining 13 trading days of December is believed
to be 1960 using the S&P 500 with the reward to 2070.
Economy: Retail sales in November
best in eight months; Car sales soar on
cheap gas; Import prices fall for fifth
straight month; Business confidence
improving
Fed Policy: FOMC this week; plunge in
oil and instability abroad expected to
keep Fed on hold in 2015
Sentiment: Indicators mixed; P/C ratio
and VIX on short-term buy signals
Strongest Sectors: Health care,
information tech and financials
The Federal Reserve Open Policy Committee meets next week. Best assumptions are that the Fed will point to improving economic
conditions which will allow for the removal of the “considerable time” reference as to when the Fed’s first rate hike could occur. We
continue to believe that the Fed will maintain the zero-percent interest rate policy in 2015. Inflation is a global phenomenon. Europe
and Japan continue to experience strong deflationary pressures. The Producer Price Index for final demand fell 0.2% in November, the
third decline in the past four months. This indicates that the stronger U.S. dollar and falling energy prices are applying downward
pressures on consumer price inflation. Considering that real wages have not improved in more than six years, the Fed is unlikely to
move away from current monetary policy until such time that wage growth approaches 4.0% (currently at 2.0%). Absent of rapidly
rising wages, a dovish Janet Yellen is very unlikely to increase interest rates in 2015.
Sentiment
Current
Previous
Indication
102%
94%
Bullish
75%
71%
Bullish
21.1
11.8
Bullish
CBOE 10-Day Put/Call Ratio
Below 80% is bearish; Above 95% is bullish
CBOE 3-Day Equity Put/Call Ratio
Below 53% is bearish; Above 64% is bullish
** 1 ranking = strongest sector – 10=ranking weakest sector
VIX Volatility Index
Below 14 is bearish; Above 19 is bullish
American Association of Individual Investors
Source:Twice
Ned as
Davis
Research
many
bulls as bears is bearish; more bears than
bulls is bullish
Investors Intelligence (Advisory Services)
55% bulls and/or less than 16% bears is considered bearish
National Assoc. of Active Investment Mgrs. (NAAIM)
Below 30% is
Above 80%
is bearish
Appendix
– bullish;
Important
Disclosures
and
** 1Davis
= Strongest
Sector
10=Trading
Weakest
Sector Composite
Ned
Research
Daily
Sentiment
Chief Investment Strategist
[email protected]
941-906-2830
45.0%
22.3%
Bulls:
Bears:
42.7%
25.9%
Bearish
Bulls:
Bears:
51.5%
14.8 %
Bulls:
Bears:
53.3%
13.9 %
Bearish
89%
87%
Bearish
Extreme Optimism
Extreme Optimism
Bearish
Optimism Waning
Excessive Optimism
Neutral
Analyst Certification
Ned Davis Research Crowd Sentiment Poll
Bruce Bittles
Bulls:
Bears:
Weekly Market Notes
RS Ranking
RS
Current
Previous Trend
Health Care
1
**
1
Information Technology
2
**
2
Financials
3
**
3
Consumer Staples
4
**
6
Utilities
5
**
5
Consumer Discretionary
6
Industrials
7
Materials
8
8
Telecom Services
9
9
Energy
10
10
Sub‐Industry Detail
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
7
Laggards:
**
4
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Managed Health Care; Biotechnology
Data Processing & Outsourced Services; Home Entertainment Software; Semiconductor Equipment; Semiconductors
IT Consulting & Other Services
Retail REITs; Real Estate Services
Drug Retail; Food Retail
Personal Products
Independent Power Producers
Home Furnishings; Household Appliances; Footwear; Distributors; General Merchandise Stores; Home Improvement Retail; Specialty Stores; Automotive Retail
Leisure Products; Casinos & Gaming; Broadcasting; Internet Retail
Human Resources & Employment Services; Airlines
Construction & Engineering; Electrical Components & Equipment; Security & Alarm Services
Commodity Chemicals; Diversified Metals & Mining; Gold
Integrated Telecom Services
Oil & Gas Drilling; Oil & Gas Equipment & Services; Integrated Oil & Gas; Oil & Gas Exploration & Production; Oil & Gas Refining, Marketing & Transportation; Coal & Consumable Fuels
** Denotes Current Relative Strength‐Based Overweight Sectors **1 = strongest sector -10 = weakest sector
Real money growth slowing will
keep Fed on hold
Robert W. Baird & Co.
Page 2 of 3
Weekly Market Notes
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.
Page 3 of 3