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Weekly Market Guide

  • 04.09.21
  • Markets & Investing
  • Commentary

April 9, 2021

Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.

The S&P 500 has been able to continue its advance after a break out to new highs last week. Underlying participation in the move has been broad with roughly 1/3 of S&P 500 stocks trading to new highs with the index. There has also been a technology-oriented tone to the strength for the first time in a while, as the technology sector and "Big 5 index" (Apple, Microsoft, Amazon, Google, and Facebook) were able to break out to new highs. These five stocks make up 22% of the S&P 500 and have generally consolidated relative strength from the pandemic in aggregate over the past several months. Strength was also exhibited by Industrials, Consumer Discretionary, and Financials, supporting our pro-cyclical stance to portfolio positioning- a healthy allocation to the "recovery areas" while also maintaining a healthy allocation to technology-oriented areas.

As noted above, market performance is extremely broad with 94% of S&P 500 stocks above their 200-day moving average. This strong technical backdrop continues to bode well for intermediate term performance trends. The recent advance has pushed many stocks to short term overbought areas, but we continue to recommend using weakness (may occur in sector rotation) as an opportunity. Energy is a sector that we believe can be accumulated at current levels for those looking to increase their exposure. We view the sector as short-term oversold within an uptrend with many stocks resting just above their 50 DMA. The sector will continue to be heavily influenced by oil price movements, but we continue to see upside for stocks with oil prices back to pre-pandemic levels (~$60/bbl) and the Energy sector still 20% below.

The next major catalyst for stocks is Q1 earnings season, which unofficially begins next week with several banks. Now beginning to lap last year's economic shutdown, earnings growth is set to become robust (consensus estimates reflect 21.3% S&P 500 earnings growth this quarter). We also believe the strong macro data in Q1 supports a high level of earnings beats and upside to estimates, continuing the historically elevated trend of   the past three consecutive quarters. In fact, 84% of the "early Q1 reporters" have beaten estimates so far by  10% (above 15-year averages of 69% and 4.7% respectively). The strongest earnings growth is expected from Financials, Consumer Discretionary, Materials, and Technology; and the best estimate revisions into earnings season have come from Energy, Financials, Materials, and Technology- a pro-cyclical mix that supports our stance on portfolio positioning mentioned above. For a more in-depth analysis of longer-term fundamentals and trends, please see our 2021 First Quarter Equity Market Update (click here) which was published this week.

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Index Definitions

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

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