Despite the global gloom that continues to cause significant concern about economic recovery virtually everywhere, the market pushed right through the resistance wall last week, threatened to give it back on Friday and Monday morning, but then continued forging ahead Monday.
It is difficult to grasp the resilience of the U.S. equity markets in light of our domestic crises – the staggering debt, unemployment hanging tight at close to 10 percent, the health care struggle, which may or may not be resolved by the bill that just passed Congress. There seems to be an implicit assumption by the marketplace that none of these looming dark clouds will actually threaten the ability of corporate America to shine on with at least modest profits.
The thing that stands out in all this is the trimming of the fat by Corporate America. Companies across a wide variety of industries have cut their budgets to the bone, which is why they’re making decent profits. In general, forward valuations are reasonable, so at least it isn’t a bubble (assuming analysts’ projections are in the general ballpark), and the dollar is holding its own against other currencies, deservedly or not.
On the international front, it is likely that the problems facing Greece and other European countries will find some resolution short of catastrophe. So even though we remain cautious, the markets move forward, and we recommend going with the trend rather than trying to fade it.
Last week, Large-cap Growth stocks led the market’s charge through resistance. They must not have heard our proclamation about bullishness within Small Caps which, like many of the favorites in the NCAA Basketball Tournament, fell to the bottom of the heap last week, albeit with quite small losses. Unlike Kansas and Villanova and the other sidelined favorites, the Small Caps get to stay in the game.
Sectors. From a sector viewpoint, Healthcare led the week, probably due to the imminent passage of the healthcare bill, regardless of its merits. Consumer Staples, Industrials and Financials also did well, while the mercurial Energy and Material sectors did poorly.
So, what the market wants is almost any stock, regardless of its cap, that has a good business, has a reasonable valuation, and doesn’t have too much debt. And it’s probably better if the stock belongs in the Healthcare or Financial sectors, which have been the most consistent performers over the past six weeks. One sector you might want to avoid is Consumer Discretionary. It has slipped one position each week for the past month in our sector returns, and our forward-looking model puts it near the bottom of the rankings.
One sector you might want to avoid is Consumer Discretionary. It has slipped one position in sector returns each week for the past month, and our forward-looking model puts it near the bottom of the rankings.
Spring is upon us, bringing its certainty of growth as buds push through the snow in many parts of the country. Let’s hope April will bring that same certainty to the markets.
4 Stock Ideas for This Market
This week, I started with the more conservative Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com). Then, I adjusted the parameters to include both Large and Mid Caps, asked for both Buys and Strong Buys, and up-weighted Technicals slightly. Here are 4 new stock ideas from 4 different sectors that I find interesting, reflecting good value and good momentum: