Baird Market and Investment Strategy Weekly Market Notes February 9, 2015 Dow Industrials 17824 S&P 500 2055 Please refer to Appendix – Important Disclosures Summary The U.S. Economy a Beacon of Strength Economy: Manufacturing slows but service sector growth continues north; labor markets surprise on the upside The equity markets roared back last week recapturing nearly all of the losses from January’s disappointing performance. The rally in stocks came on the heels of a Fed Policy: Strong wage report prompts 7.0% five-day rally in crude oil. Rising prices for oil and other commodities rise in expectations of Fed rate hike including copper put aside, at least for the time being, the notion that the global economy was dangerously close to recession. The domestic economy also Sentiment: Indicators remain mixed. AAII exhibited signs that growth was accelerating following Friday’s report from the survey shows increase in bears but active Labor Department. Non-farm payrolls were much stronger than expected in money managers fully invested January. Additionally, revisions to the prior two months were substantially higher. The data showed that the U.S. economy created one million jobs the past three Strongest Sectors: Consumer months. The jobs report also included the fact that the average weekly hours are at discretionary and materials moving into top the best level in more than eight years and the improvement in hourly earnings in positions – bullish ramifications for market January was the best since 2008. The good news supported the consensus view that the Fed will raise interest rates later this year. We continue to believe a rate hike is unlikely given the instability in the global economy. Nevertheless, should Fed Chief Yellen decide to take action on rates, it is not expected to have a negative influence on stocks. According to Ned Davis Research, the stock market has historically rallied into the first rate hike by the Fed and trended higher six months following the initial rise in rates. Since November, stocks have traded between 1970 and 2070 using the S&P 500 and we anticipate that will continue as we move deeper into the first quarter of 2015. Looking further out, a breakout is expected to be on the upside given the improving economic fundamentals and technical condition of the equity markets. The strong combination of improving wages and lower energy costs will provide consumers the ability to improve their balance sheets. Over the long term, the economy and financial markets do best when consumers are adding liquidity by saving more. Technically, the breadth of the market improved significantly last week. The percentage of groups within the S&P 500 that are in uptrends climbed to 70% from 67% the previous week. Despite last week’s performance ranking as the best in 24 months, investor enthusiasm remains muted. Until investor optimism becomes excessive and deeply seated the longer-term bullish trend is expected to continue. Sentiment Current Previous Indication CBOE 10-Day Put/Call Ratio Below 80% is bearish; Above 95% is bullish 102% 103% Bullish CBOE 3-Day Equity Put/Call Ratio Below 53% is bearish; Above 64% is bullish 65% 71% Neutral VIX Volatility Index Below 16 is bearish; Above 21 is bullish 17.3 20.9 Neutral American Association of Individual Investors Twice as many bulls as bears is bearish; more bears than bulls is bullish Bulls: Bears: 35.5% 32.4% Bulls: Bears: 44.2% 22.4% Neutral Investors Intelligence (Advisory Services) 55% bulls and/or less than 16% bears is considered bearish Bulls: Bears: 49.0% 16.3 % Bulls: Bears: 53.1.0% 16.3 % Neutral National Assoc. of Active Investment Mgrs. (NAAIM) Below 30% is bullish; Above 80% is bearish Ned Davis Research Crowd Sentiment Poll Ned Davis Research Daily Trading Sentiment Composite Bruce Bittles Chief Investment Strategist [email protected] 941-906-2830 93% 92% Bearish Optimism Fading Optimism Fading Neutral Pessimism Fading Extreme Pessimism Neutral Weekly Market Notes RS Ranking RS Current Previous Trend Utilities 1 ** 1 Consumer Discretionary 2 ** 4 Health Care 3 ** 2 Consumer Staples 4 ** 3 Materials Information Technology 5 7 + 6 6 - Industrials 7 5 Telecom Services 8 9 Financials 9 8 Energy 10 10 Leaders: Laggards: Leaders: Laggards: Leaders: Laggards: Leaders: Laggards: Leaders: Laggards: Leaders: Laggards: Leaders: - Laggards: Leaders: Laggards: Leaders: Laggards: Leaders: Laggards: ** Denotes Current Relative Strength-Based Overweight Sectors ** 1 = Strongest Relative strength 10 = Weakest Relative strength Sub-Industry Detail Independent Power Producers Home Furnishings; Household Appliances; General Merchandise Stores; Apparel Retail; Home Improvement Retail; Automotive Retail; Homefurnishing Retail Tires & Rubber; Motorcycle Manufacturers; Leisure Products; Apparel, Accessories & Luxury Goods; Casinos & Gaming; Broadcasting Managed Health Care Drug Retail; Food Retail; Distillers & Vintners Aluminum Diversified Metals & Mining; Steel Home Entertainment Software; Electronic Components Electronic Equipment & Instruments Diversified Support Services; Human Resources & Employment Services Construction & Engineering; Electrical Components & Equipment; Construction Machinery & Heavy Trucks; Trading Companies & Distributors; Office Services & Supplies Diversified REITs; Office REITs; Residential REITs; Retail REITs Consumer Finance; Life & Health Insurance; Multi-line Insurance Oil & Gas Equipment & Services; Coal & Consumable Fuels S&P 500 Around Six Months Before and After Starts of Fed Tightening Cycles 110.0 110.0 109.5 109.5 109.0 109.0 Average of 13 Cases Since 1928 108.5 108.5 108.0 108.0 107.5 107.5 107.0 107.0 106.5 106.5 106.0 106.0 105.5 105.5 105.0 105.0 104.5 104.5 104.0 104.0 103.5 103.5 103.0 103.0 102.5 102.5 102.0 102.0 101.5 101.5 101.0 101.0 100.5 100.5 100.0 100.0 -6 -5 -4 -3 -2 -1 0 Start of Tightening Cycle 1 2 Source: 3 S&P Dow Jones Indices 4 5 6 Months Prior | Months Post SSF14_15A_C © 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: Source: Stockcharts 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 2015 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
© Copyright 2024