What the Market Wants: Risk Remains On

Courtesy of David Brown, Sabrient Systems and Gradient Analytics

The market enthusiasm generated by the positive employment report on Friday carried over to today. The rally in Technology stocks continued from last week, but Financials did even better. With the Nikkei and FTSE both closed, the off-shore action ended slightly more positive than negative. We had no domestic reports today in what will be a quiet week of economic news with only Thursday’s Initial Jobless Claims and Wholesale Inventories Reports, following tomorrow’s Consumer Credit report.

Last week’s generally positive news should carry in this week, barring any major shake-ups from global hot spots. Positive Personal Spending and robust increases in Case-Schiller HPI and Consumer Confidence paved the way for the strong employment reports last week. Only Chicago PMI, Personal Income, and Construction Spending kept the week from a break-out rally. But one can’t complain about the 2% rise in the S&P 500, which reached new all-time highs today along with a 3% gain in the NASDAQ, as techs carried the week.

In addition to Financial and Technology stocks, Energy did well today as oil and gas bounced to positive closes after weak openings. So, without a negative surprise, it is likely that equities will continue to rise as funds flow from the dangerously risky bond market (note Buffet’s comments today on bond risk). Our study of valuations continues, but it appears that while clearly above average, valuations are well off former highs. Hopefully, we will have more specifics on valuation by next week.

What do the equity markets favor? Well, last week all style/caps did well, but the best was Large-cap Growth, up 2.5%, and the worst was Large-cap Value, up 1.4%. In general, growth fared a bit better than other styles, except for small-caps. With Utilities and Heathcare bringing up the bottom of the sector performances, it’s clearly been a risk-on market, particularly in the Technology and Financial sectors.

Here are the Market Stats.

4 Stock Ideas for this Market

I select the following stocks with GARP in mind:

AGCO Corporation (AGCO) – Industrials

Trading for 10.32x current earnings and 9.25x forward
Recent upward analyst revisions to EPS estimates
Projected EPS growth: -13% current quarter, 25% next quarter

Macy’s Inc. (M) – Consumer Cyclical Goods

Trading for 14.2x current earnings and 10.4x forward earnings
Projected EPS growth: 23.3% current quarter, 16.4% next quarter

Seagate Technology (STX) — Technology

Trading for 6.6x current and 6.7x forward earnings
Upward analyst revisions to EPS estimates in the last 7 days for coming quarters and year
Positive technical trend
Strong Q1 earnings report with positive forward guidance

EPL Energy Gas Partners LP (EPL)—Energy