This Rally May Have Legs - Bespoke

 |  Includes: ADM, AXP, DIA, INTC, MA, MO, QQQ, SPY, V, XLF
by: SA Eli Hoffmann

Barron's interviews Seeking Alpha contributors prolific Paul Hickey and Justin Walters - founders of Bespoke Investment Group. Based on a variety of measures and home-cooked indicators, the deep-data researchers say they're cautiously optimistic that the bottom is in - and see signs the current rally may have legs.

Some key datapoints:

  • It's looking more and more like the yield-curve peaked last fall, especially after March 18 when the Fed announced its plan to monetize Treasurys. Historically, this is a good sign for stocks.
  • When consumer confidence hits record lows, as it did recently, stocks are almost always higher 6-12 months out.
  • Prior bear market rallies were led by defensive sectors like energy and telecom. This time around, financials and tech are leading the way.
  • Emerging markets are making a break; China's up 30% YTD and Brazil is up 13%.
  • Markets have posted 12-year negative trend returns only two other times, and both were buying opportunities.

Stocks they like:

  • MasterCard (NYSE:MA) - unlike American Express (NYSE:AXP), it has no credit risk. They favor MA over Visa (NYSE:V) because of its cheaper 16x valuation.
  • Archer Daniels Midland (NYSE:ADM) - a play on a weak dollar, which should boost agricultural commodities.
  • Altria (NYSE:MO) - is recession-resistant and yields 7%. With state governments generating about $2.50/pack in taxes, no one's going to kill this golden goose.
  • Intel (NASDAQ:INTC) - with 15% of its market cap in cash, its 3.55% yield is one of the safer ones.


  • Barron's penned a bullish piece on Visa (V) today, noting Visa's 75% share of the U.S. debit card market dwarfs MA's 25%.
  • Hao Jin thinks quantitative easing will be a boon for agriculture stocks.