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Courtesy of David Brown, Sabrient Systems and Gradient Analytics
Today was another surprise Monday. Short sellers who thought a rough weekend in Ukraine might stir up the war drums again were wrong. In addition, China took several steps to boost its economy, and the domestic economic reports were fairly positive. As a result, the shorts capitulated at the opening and risk was on. The day ended led by the DJI (every stock was positive!), up more than 1%, with the S&P 500 up nearly 1% and the NASDAQ up about 0.8%. All sectors rose, led by the normal risk-on leaders, Technology and Industrials, both up +1.3%. Financials were up 1.0%, and Healthcare was up 0.9%. While Utilities were favored last week, it trailed all sectors, up 0.6%.
It isn’t that there was a lot of positive news from the Crimean secession referendum, but rather that it passed by a resounding 95% without military action or rioting. The U.S. and Western Europe grumbled about legality and possible sanctions, although only relatively minor ones were thrown on the table today.
The crisis is hardly over. Putin could escalate against Ukraine but hasn’t yet. Sanctions could get worse, but they haven’t yet. There are many issues of infrastructure support for Crimea. But it is possible that the parties to the crisis could agree that maybe everyone could get what they want without too many dramatics to restore the severe crisis atmosphere. Probably not very likely, but at least for today, the shorts have miscalculated.
China’s new urbanization plan stabilized Chinese economic worries as did daily trading Yuan’s rise from 1% to 2%, which should assist Chinese exporters. China’s market liked what it saw, at least today, with the Shanghai market up almost 1%. European markets all rose more than 1% except the FTSE 100 which rose 0.61%.
Meanwhile here at home, Industrial Production surprised coming in at +0.6%, much better than expectation of 0.1% and last month’s dreadful -0.3%. The NY Empire Manufacturing Index also rose to 5.6, better than the expected 5.4 and better than last month’s 4.48.
So a good day for the bulls after last week’s poor performance. We should note that volume was well below norm today on the NYSE so we shouldn’t get too excited. Remember, last week was led by Small-cap Value’s loss of 1.17%, and Small-cap Growth, a year-long leader, fell a sickening 2.7% to turn in the worst performance. Last week was a classic flight-to-safety week with the only the positive sector Utilities up 1.57%, followed by smaller losses from other flight-to-safety sectors Consumer non-Cyclicals and Healthcare, down less than 2%. Other sectors crashed with Industrials losing nearly 3%. Again volume was relatively light perhaps due to spring break?
Looking ahead, caution must still prevail with our Sabrient SectorCast model forecasting strength from Technology and Financials (see the market data below). And as usual, we will be looking for growth stocks at bargain prices. A lot of housing data this week should give us another look at how housing growth is doing. The Philly Fed will try to confirm today’s strong data, and the Redbook data may give another forward peek at how the Fed sees the economy.
3 Stock Ideas for this Market
The following stocks were selected from the top of our stock universe with great earnings growth projections, reasonable valuations and recent upward revisions to earnings estimates.
Forest Investment Group LLC (FIG) –Financials
- Trading for 10x current earnings and 7x forward earnings estimates
- Recently beat earnings on increased revenue, lower expenses and a strong balance sheet
- Analysts have revised earnings estimates up in the last 30 days
- 9% in 2014, 18% next year, 52% 5-year
United Rentals Inc. (URI)—Industrials
- Trading for 25x current earnings and 12x forward earnings estimates
- Analysts have revised EPS estimates up in the last 7 days
- 26% projected EPS growth current quarter, 25% next quarter, 24% in 2014, 31% 5-year
Marathon Petroleum Corporation (MPC)—Energy
- Trading for 14x current and 9x forward earnings estimates
- Analysts have revised EPS estimates up in last 7 days
- 63% projected EPS growth next quarter, 35% in 2014, 10% 5-year
