2023-09-22 19:41:18 ET
Summary
- Energy sector has made no progress since December 2022, but commentators are now chasing it up.
- Sectors that were hated in 2020 are expected to have the highest earnings growth in 2023.
- The top sectors with faster earnings growth than the S&P 500 in 2024 are Communication Services, Info Tech, Consumer Discretionary, Healthcare, Industrials, and Financials.
If you recall, last December AFTER the energy sector was up was up 376% off the covid lows ALL of the commentators who HATED energy in 2020 couldn’t get enough December of 2022 – because TECH was “dead.” The energy sector has made ~ZERO progress since. In the first few months of this year when it failed to perform – the same commentators couldn’t sell out fast enough. As we approach Dec 2022 levels once again, they’re back tripping over themselves to chase up.
Stockcharts
One of the reasons we suggested taking a pass on energy at the highs last December was that the sectors that everyone hated were poised to have the highest earnings growth in 2023 (Tech, Semi’s, Etc), while the sectors that everyone loved (Energy, Utilities, Staples) were set to have the worst. People bought what was up in PRICE, with no regard for what they were getting in VALUE (fundamentals).
Stockcharts Stockcharts
So while we believe in the intermediate term secular story in Oil, we made our play from 2020-2022. The top holdings of the five sectors that will have faster earnings growth than the S&P 500 in 2024 are:
Communication Services
SSGA
Info Tech
SSGA
Consumer Discretionary
SSGA
Healthcare
SSGA
Industrials
SSGA
And Financials (because we like them):
SSGA
The key is finding the companies in these groups that are the most undervalued relative to peers – with growth prospects ahead and taking advantage of the recovery.
So while everyone else chases energy UP “buy the breakout”, you can take solace in skating to where the puck is going, versus chasing after the bulk of the move has occurred.
On Thursday evening, I joined Phil Yin on CGTN America to discuss stock market outlook, US consumer, China, Banks, Earnings, Inflation, the Fed and more. Thanks to Phil and Ryan Gallagher for having me on. You can view it here:
I also joined Syarifah Rahma on CNBC “Closing Bell” Indonesia to discuss Central Banks’ policy, inflation and Outlook for US and Emerging Markets and what I would do if I were “king for a day!” Thanks to Fitria Anggrayni and Syarifah Rahma for having me on.
As it relates to this outlook, these are the two most important charts to watch in coming weeks:
Stockcharts Stockcharts
If past is any prologue, we could see an “overshoot” before a reversal like in 2018:
Finviz Charlie Bilello BofA RBC
Fed Economic Projections:
Federal Reserve
Dot Plot:
Federal Reserve
Fed Statement:
Always remember, the first move is not always the right move. Despite equities selling off, bonds selling off and USD climbing after the press conference, the ODDS of a hike before the end of the year actually came DOWN:
Odds of a 25bps hike in November dropped from ~41% a week ago to ~28% now.
Odds of a 25bps hike by the December meeting dropped from ~42% a week ago to ~39% now.
Sell Rosh Hashanah, buy Yom Kippur
The Fed gave us what was expected. Pause hikes and threaten to do more. No major surprises. But, we are where we are in the calendar and just need to sit through a little air pocket:
Yatrakis and Williams, “Sell Rosh Hashanah, buy Yom Kippur”
Almanac Trader
Source: Almanac Trader/Jeff Hirsch
In case you are wondering, Yom Kippur is the Evening of Sun, Sep 24, 2023 – Mon, Sep 25, 2023
Carson Investment Research / Ryan Detrick
What about the possible Shutdown?
Carson Investment Research / Ryan Detrick
BofA
Now onto the shorter term view for the General Market:
In this week’s AAII Sentiment Survey result, Bullish Percent dropped to 31.3% from 34.4% the previous week. Bearish Percent ticked up to 34.6% from 29.2%.
AAII.com Stockcharts
The CNN “Fear and Greed” ticked down from 51 last week to 47 this week.
CNN
MacroMicro
And finally, the NAAIM (National Association of Active Investment Managers Index) rose to 57.98% this week from 49.73% equity exposure last week.
Stockcharts
Opinion, not advice.
For further details see:
'What We Expected' Stock Market (And Sentiment Results)...