Join        Login             Stock Quote

Sector Detector: Financials Top The Forward Rankings As Bulls Stay Bold

 April 19, 2012 08:42 AM

(By Scott Martindale) After an almost straight-up run for the first three quarters of the year, stocks are no longer making it quite so easy of a decision to stay long. Nevertheless, the bulls seem to be holding strong in their conviction. Apple (AAPL) has been a leader throughout, but even during that recent 5-day stretch when money was pulling out of Apple, it hasn't necessarily gone to cash–it's just shifting to other sectors, including cyclicals like Caterpillar (CAT). Moreover, the Dow Jones Transportation Average has been strong.

[Related -Apple Inc. (AAPL): iPhone Trending into Another Carl Icahn Disappointment?]

This continues to suggest to me that the downside is limited—so long as the Bernanke-driven supply of free money continues. As a reminder, although there is currently no quantitative easing program in place, the Fed launched "Operation Twist" last October whereby it sells $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds in an effort to depress yields on longer-term bonds (while maintaining ultra-low short-term rates) with the intent of incentivizing consumer and business to borrow and spend by pushing down interest rates on loans and mortgages.

This program is scheduled to end in June 2012. Because all stock market gains since the March 2009 V-bottom have occurred during Fed stimulus programs, it is quite possible that the market will stall or even selloff in June when Operation Twist ends. But for now, the stage is set for further gains. 

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

Individual and institutional investors as well as corporations are all still sitting on historically high reserves of cash. As fear stays low, the cash has been finding its way into the markets, including corporate stock buybacks and acquisitions.

Earnings season kicked off last week, and so far the number of companies beating earnings estimates and giving positive guidance has been quite high. For example, Seagate Technology (STX)–Sabrient's top pick in its "Baker's Dozen" top stocks for 2012—just gave a fine report, and Wednesday it hit a new 9-year high and finished the day up nearly 4%.

Reported revenues are harder to manipulate than earnings, but the year-over-year consensus estimates on top-line growth are not very challenging as analysts have been quite conservative. So, I expect more good news this season.

That leaves European sovereign debt issues and growth concerns in China as the main things that could derail the bull train.

As for Europe, it is now Spain that has emerged front and center, so when Spanish bond rates rise, the markets get more fearful. Since early March, the 10-year yield has risen from 5.0% to 6.0%–with 6% seemingly the dividing line between manageable and unmanageable debt payments. On Monday, the yield rose above 6% and stock markets sold off. On Tuesday, yields fell and markets rose spectacularly. (For comparison, U.S. 10-year notes yield about 2% and Germany is near 1.7%.)

Still, although the ECB has kept the liquidity spigot open to Spain's advantage, many observers believe that there is no avoiding an eventual bailout of Spanish banks, and they say that Italy (with a GDP 50% larger than Spain's) will be close behind. No doubt, Germany has benefited from the EU in that the weaker economies can't devalue their currencies against the Deutschmark like they used to, since they all use the euro now. But the flipside is that Germany is responsible for supporting the bailout of their EU brethren.

As for China, last week the country reported weaker year-over-year GDP growth of only 8.1%–down but still quite robust. Of course, the Chinese government will do everything in its power to avoid a hard landing scenario, but also with a measured effort to prevent it from overheating. Perhaps the biggest threat in this regard is a potential real estate bubble.

Of note, China is the subject of this month's edition of The MacroReport, which is a monthly co-publication of Sabrient Systems and MacroRisk Analytics, providing an in-depth analysis of the macroeconomic trends in focus territories. The MacroReport offers a unique combination of global market commentary and analysis with specific actionable ideas.

Next Page >>123


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageBogle Says Indexing Destined To Win The Battle Of The Quants

Vanguard founder John Bogle gave a powerful speech last month at the Q Group’s Spring Seminar that lays out read on...

article imageVMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years

REX Shares is launching two new VIX exchange-traded products on Tuesday in what is likely to be the most read on...

article imageThe April 29 Gold Triangle Breakout Update

If you’re just watching stocks, you may be missing this powerful Triangle Breakout surge in read on...

article imageSell In May, But It Is A Presidential Election Year

With May just around the corner, articles covering the "Sell in May' phenomenon are not in short supply and read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.