One Guy” – listening to the Delivering Alpha conference this week with one ear, doing some spreadsheet work, I was really struck by the gloom and doom of just about everyone at the conference.
It was depressing to listen to – except for one guy – Bill Miller.
Bill suggested be long the S&P 500 and short the 10-Year Treasury: a simple, easy, and crisp game plan.
It isn’t just the lack of bullish sentiment that continues to surprise, it is days like the Delivering Alpha conference, where you have to turn off the sound to prevent becoming very depressed. From listening to the comments you would think France or Poland had just been overrun, or the Russians had just closed off East Berlin.
Every week Bespoke recaps the American Association of Individual Investors (AAII) data: this week bullish sentiment fell from roughly 29% to 27% (the 80th of the last 81 weeks where bullish sentiment has been below 40%) while bearish sentiment rose from 28% to 36%. Bespoke adds, since 2008, the individual investor turns bearish in any market pullback far faster than they get bullish in a longer market run.
For readers this sentiment data should continue to portend favorably as a contrarian indicator of positive future stock returns.
The Technology sector came to life this past week, and it was more than just Apple (NASDAQ:AAPL). The semis have been strong. Intel (NASDAQ:INTC) raised guidance Friday morning, September 16th), as have the F-A-N-Gs—Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL)—just not to the degree that FANG and Growth outperformed last year.
If you have been a reader of this site, a month ago the better-than-expected Tech sector revisions were written about here, and then again here.
As of June 30th, 2016, the Tech sector’s YTD return was -0.3% or -30 basis points, for the first 6 months of the year. Since June 30, 2016, the Nasdaq Composite is up 8.3% in terms of its capital gain.
Since mid-August ’16, the Comp has been flat or is trading roughly where it is today.
Technology has been clients' largest overweight for the past few years, and continues to be so, despite the shellacking it took in the first 6 months of 2016. Financials are the 2nd largest weighting, as they have been for some time, and continue to be so.
Given the earnings data, expect Tech to be strong through at least Q1 ’17, and through Q1 ’17 earnings.
The S&P 500 is lapping easy compares in Q4 “16 and Q1 ’17 from the China slowdown last year and the collapse in commodity prices through mid-February ’16. Expect better earnings growth in Q4 ’16 and Q1 ’17 thanks to those tough compares.
Thomson Reuters data (by the numbers)
- Forward 4-quarter estimate: $125.54 down slightly from last week’s $125.85
- P/E ratio: 17(x)
- PEG ratio: 8(x)
- S&P 500 earnings yield: 5.87%
- Year-over-year growth rate of the forward estimate: +2.08%, and the highest rate since January 29, 2016.
Readers will laugh, but the 2% growth in the forward estimate is the highest in 9 months, and represents the drag Energy has had on the S&P 500. Since 2009, a “normal” rate has been closer to 5% – 6%, thanks to the depressed Financial sector, and since ’14 Energy and Commodities.
Don’t ignore that 2017 bottom-up EPS estimate of $134.03 – the way the revisions stand right now, that estimate has remained very stable since April 1 ’16, which is a very good sign and was written about here.