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.
IMPORTANT INVESTOR DISCLOSURES
This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.
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.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.
The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.
MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index's three largest industries are materials, energy, and banks.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
For clients in the United Kingdom:
For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.
For clients in France:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in "Code Monetaire et Financier" and Reglement General de l'Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.
For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
For Canadian clients:
This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.
Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.