BY Scott Martindale,
Volatility continues as the parade of mixed earnings and economic reports marches along amidst a backdrop of global unrest and economic uncertainties. This has led to a neutral near-term outlook for both the technical picture and fundamentals-based sector rankings. Nevertheless, the longer-term trends appear to favor further flattening of the yield curve and continued strength in the dollar, gold, volatility, and equities. Overall, this week's fundamentals-based Outlook rankings have taken a neutral turn in my view, as market sentiment continues to grow more cautionary. Nevertheless, our sector rotation model has moved to a bullish bias and suggests holding Technology, Financial, and Energy sectors. Also discussed are some alternative highly-ranked ETFs and individual stock ideas from within the top-ranked sectors, and what the model suggests if you prefer a neutral or defensive outlook.
BY Scott Martindale,
Volatility reigned in January on elevated volume as stock investors shifted their focus from global events to U.S. earnings reports, which have ranged from amazing (e.g., Apple) to crushing (e.g., Microsoft). Although the earnings reports have brought plenty of surprises, the volatility is no surprise. Still, although the road may be bumpier than the past couple of years, the path of least resistance appears to be up, and the main question is whether small caps and emerging markets will make an attempt to regain past glories or if U.S. large caps must continue to carry the load. The most notable observation this week is the acceleration in downward revisions to forward earnings estimates by Wall Street sell-side research analysts. Thus, after a streak of eight consecutive quarters of earnings growth, the estimates are indicating that the streak may be ending. Nevertheless, overall, this week's fundamentals-based Outlook rankings still look generally bullish to me, although less so than last week, as market sentiment has taken a cautionary tone. Cautious optimism remains the prevailing mood. Our sector rotation model suggests sticking with a neutral bias and suggests holding Technology, Financial, and Healthcare. Also discussed are some alternative highly-ranked ETFs and individual stock ideas from within the top-ranked sectors, and what the model suggests if you prefer a neutral or defensive outlook.
StyleMap® depictions of characteristics are produced by Fidelity using data from Morningstar, Inc. StyleMaps estimate characteristics of a fund's equity holdings over two dimensions: market capitalization and valuation. The percentage of fund assets represented by these holdings is indicated beside each StyleMap. Current StyleMap characteristics are denoted with a dot and are updated periodically. Historical StyleMap characteristics are calculated for the shorter of either the past three years or the life of the fund, and are represented by the shading of the box(es) previously occupied by the dot. StyleMap characteristics represent an approximate profile of the fund's equity holdings (e.g., domestic stocks, foreign stocks, and American Depositary Receipts), are based on historical data, and are not predictive of the fund's future investments. Although the data are gathered from reliable sources, accuracy and completeness cannot be guaranteed.