- With a handful of mega-caps driving index-level returns, we want to see sector-level leadership confirmed by similar sector strength on an equal-weight basis, as well as further down the capitalization scale.
- Financials are the top-ranked sector in our rankings on both a cap-weight and equal-weight basis. Strength fades among mid-cap and small-cap Financials. Real Estate remains a leader across the board from a weighting and size perspective, though it has slipped on a short-term basis.
[PLUS] Weekly Observations & One Chart for the Weekend
From the desk of Willie Delwiche.
Consumer Sentiment for August was expected to be little changed from where it was in July (81.2). The actual data (based on responses collected over the first half of the month) showed consumer sentiment undercutting last year’s lows and dropping to its lowest in nearly a decade. While consumers’ assessment of current conditions moved lower in August, the collapse in the overall sentiment index was really fueled by more dour expectations about the road ahead. Consumer expectations indexes are considered leading indicators for the economy overall and the August collapse may point to increased economic headwinds as we head toward the end of the year.
[PLUS] Weekly Town Hall Meeting w/ Willie Delwiche & JC Parets
This is the video recording of the August 12th Town Hall Meeting w/ Willie Delwiche
08/12/21 2PM ET [Read more…]
TD Ameritrade Network Appearance: Talking about Breadth and Rates with Oliver Renick
From the desk of Willie Delwiche.
I enjoyed the chance to catch up with my friend Oliver Renick on the TD Ameritrade Network yesterday afternoon. You can see the entire conversation here, but I wanted to highlight (and expand on) a couple of things he and I talked about.
[PLUS] Weekly Sentiment Report
From the desk of Willie Delwiche.
Key takeaway: Sentiment continues to argue a case for caution. Pessimism remains near historical lows. Nasdaq trading volume dwindles along with risk-seeking behavior. And with the economic surprise index slipping below zero, better than expected economic data no longer provides a tailwind. Yet, pockets of strength remain (including the earnings revision trend) and optimism has ticked higher across our sentiment indicators. Active investment managers have increased their exposure, throwing caution to the wind during a seasonally challenging period. All this does not lessen the real risks associated with the lopsided sentiment that tilts toward extended optimism.
Sentiment Report Chart of the Week: Analysts Still Playing Catch Up
The earnings revision uptrend has slowed its ascent in recent weeks, but it continues to move higher. Overall earnings expectations for 2021 have risen by nearly 20% since the beginning of the year (on average, earnings estimates are revised down 4% over the course of the year). Stocks tend to do well when earnings estimates are being revised higher and struggle when that tailwind fades.
[PLUS] Dynamic Portfolio Management: Staying in Harmony with Shifting Trends
From the desk of Willie Delwiche.
The overall weight of evidence continues to argue for caution and we have yet to see a decisive shift toward a risk-on environment. But we have made some changes to our dynamic portfolios to stay in harmony with the shifting trends within the equity market.
In the Cyclical portfolio we’ve thrown in the towel on our Energy sector exposure and are positioning to benefit from the resumption of the uptrend on bond yields. Financials and other cyclical value areas appear poised for another round of leadership.
In the Tactical Opportunity portfolio we are putting some of our cash to work (though continue to have a healthy amount on the sidelines – remember cash is an asset class). We are adding to strength within our domestic equity exposure and see an opportunity to add global exposure at a time when many foreign ETF have already been struggling with overhead supply.
[PLUS] Weekly Market Notes & Breadth Trends
- Financials have quietly maintained a spot in the sector leadership group based on our relative strength rankings. They have been in the leadership group since November and have been the top-performing sector over the past year.
- The discrepancy in between the cap-weighted and equal-weighted rankings for the Discretionary and Communication Services sector puts on display the impact a handful of mega-caps can have on sectors (and indexes). Without the impact of FB and GOOGL, Communication Services would be one from the bottom rather than one from the top. The inverse is true with respect to Consumer Discretionary and AMZN.
[PLUS] Weekly Observations & One Chart for the Weekend
From the desk of Willie Delwiche.
It’s said that the most bullish thing stocks can do is go up. If something goes up enough, it starts to make new highs. Indexes like the S&P 500 and the NASDAQ 100, fueled by gains in a handful of mega-cap stocks, have been making new highs but beneath the surface, participation has been relatively narrow. Breaking the S&P 1500 into its component indexes, we see that while still not getting a plethora of new highs (especially at the mid-cap and small-cap level), we have seen some improvement over the past month. Encouraging, but not yet exciting. For that, we want to see new highs eclipse their early June levels (which for the S&P 1500 overall would be in the 200-250 range).
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