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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
The usual suspects of Materials, Industrials, Financials and Energy continue to lead this unstable market both up and down. Technology has been less volatile, and in fact it has been tracking closely with Healthcare lately. These two also happen to rank the highest this week in Sabrient’s SectorCast ETF rankings.
Last week, the Dow suffered its worst one-week performance in nearly three years — after the FOMC came out with a highly negative statement about the economy’s “significant downside risks,” including volatility in financial markets, high unemployment, depressed housing market, and cautious consumer spending.
However, Nicholas Colas of ConvergEx pointed out in his daily commentary that the average multiple for the 30 Dow stocks is 10.3x next year’s consensus earnings projections, which is historically low, and the average dividend yield is 2.6%. But he also points out that although corporate earnings have stayed strong and the Fed is doing everything it can to keep up the stimulus, the magnitude of expected earnings growth seems overly ambitious. Given all the global uncertainty, it is certainly understandable that many investors are reluctant to rely on analyst projections. And in fact Sabrient’s data is showing that analysts are gradually reducing their estimates.
The European financial crisis is getting hopeful signs but is still not yet resolved. European commercial banks hold plenty of sovereign debt from the PIIGS nations. But with the crisis in Greece, and the Greece 1-year bond still yielding a dire 131%, fears of default and a possible banking crisis abound. Europe is expected to create a plan similar to the 2008 U.S. TARP program in which $700 billion was injected into U.S. banks. A “Euro-TARP” is estimated to require $200 billion of capital to purchase distressed sovereign debt from the European commercial banks.
Optimism around this program supported the stock markets bounce this week through Wednesday morning, but ultimately it was a little too much too soon for many investors, who decided to lock in some gains.
One big winner on Wednesday despite overall market weakness was Sabrient favorite Jabil Circuit (JBL), up +8% after a stellar earnings report. Sabrient’s models give it a Strong Buy rating and an Outlook score of 98, Value score of 92, and Growth Score of 99.
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