LARRY SECTORS

[TREND1]

Here is what the data shows for EXPECTED growth by sector for Q4 '16:
• Consumer Discretionary: +3.5% as of 11/4, vs. expected growth of 7.9% as of October 1 (mostly Amazon's (NASDAQ:AMZN) tempered results hurting sector).
• Consumer Staples: +8.3%, vs. +9.3% as of October 1.
• Energy: +2.9% vs. +2.5% (deserves a separate blog post - even though crude oil down, Energy earnings could be better in Q4 '16).
• Financials: +15.4%, vs. +13.7% (the only sector to show a positive return since 9/30/16 - stay with Financials for Q4 - the higher revisions a definite plus).
• Health Care: +6.4% vs. +8.3% (the drug distributor stocks have gotten crushed. The sector revision's not yet alarming though.)
• Industrials: -2.6% vs. +2% as of October 1.
• Basic Materials: +7.3% vs. +21.7% as of October 1.
• Real estate: +2.5% vs. +4.1%.
• Technology: +7% vs. +6.1% (Tech is the other sector that has seen upward revisions since October 1 for Q4 '16 - important tell).
• Telecom: -0.3% vs. +2.1% as of October 1.
• Utilities: +11.1%, vs. +16.7%.

S&P 500: +6.6% vs. +8.3% as of October 1

Conclusion: Technology and Financials are showing upward revisions to Q4 '16 earnings which (again) is atypical of the normal pattern, hence I would encourage readers to heed the revisions and stay with the sectors. These two sectors are our largest overweights for clients, but really that has been the case for most of this decade. Tech and Financials had their bear markets from March 2000 through 2009, thus even the Tech companies that are growing rapidly - like the FANG stocks - are not nearly as overvalued as the tech stocks of the 1990s. (Long Facebook (NASDAQ:FB), Amazon (AMZN), Google (NASDAQ:GOOG) (NASDAQ:GOOGL)).


Energy and Health Care deserve a separate blog post (each) which are coming tomorrow, and Monday, 11/7.

For now, continue to stay with Tech and Financials. The market weakness, and the "down 9 days in row" losing streak are what they are, but as long as these two sectors see earnings and revenue revisions moving the right away, the downside to the S&P 500 has to be limited since Technology and Financials are still close to 35%-40% of the S&P 500 by market cap.

Thomson Reuters data (by the numbers):

Forward 4-quarter estimate: $128.56

P/E ratio: 16.54(x)

PEG ratio: 4.6(x)

S&P 500 earnings yield: 6.05%

Year-over-year growth of forward estimate: $128.56 - third week in a row it has moved lower.

The S&P 500 earnings yield has been above 6% for five weeks in a row now, since the forward estimate is now firmly positive, but the S&P 500 is testing its 200-day moving average. Something will have to give one way or the other, but I suspect we will see a pretty healthy stock market rally shortly.



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