Business Magazine

What the Market Wants: Risk-on

Posted on the 29 April 2013 by Phil's Stock World @philstockworld

What the Market Wants: Risk-onIt was a pleasant opening today for the market with positive results and market activity from Europe, as well as generally positive domestic economic reports this morning.  In particular, pending home sales were up 1.5% versus an expected 0.1% and last month’s -1.0%.  Personal spending was a little better-than-expected while personal income was but a tad less-than-expected and lower than last month.  The week will be fairly full as companies continue to report Q1 earnings, and it is a busy week for economic reports as well. These include Chicago PMI, Case Schiller, and Consumer Confidence tomorrow; Construction Spending Wednesday; Initial Jobless Claims and Trade Balance Thursday; and the full monthly report of employment on Friday. Most are expected to be near expectations.

Last week, as you will note in the market stats below, Small-cap Growth led the week’s strong market, up 2.8%, while Large-cap Value trailed but was still up 1.75%.  The SPY flirted with its all-time high of 159.7, which it set on April 11, and is flirting with it again today.  Energy (+3.47%), Technology (2.78%), and Consumer Cyclicals (2.68%) led last week’s sector performance while Utilities, Healthcare, and Non-Cyclicals trailed with only Non-Cyclicals in the red.

Here are the Market Stats.

This week appears to be shaping into a classic “flight-to-risk” market — indeed, the diametric opposite of the previous week.  Most corporate reports beat on earnings, doing even better than the last several quarters, while most missed on revenues, in even worse fashion than recent quarters.  For now, the market appears be “risk on,” although a bit flighty with rapid reversals in behavior. 

Sign of a top?  Not sure. We will do our quarterly analysis of valuations this week and report to you next week.  Our sense is that valuations are well off the early 2009 bottom, but they are not near extremes.  We believe, but must confirm, that forward values are just average or a tad over average across the board.

We would continue to seek growth stocks that are priced reasonably and perhaps favor mid-caps to ease our cautionary concerns.  This week should be fairly important with the numerous important economic releases.

3 Stock Ideas for this Market

This week we did a GARP preset search in MyStockFinder:

Genworth Financial Corp (GNW) – Financials

Trading for 15x current earnings and 7x forward

Recent upward analyst revisions to EPS estimates

350% projected EPS growth for the current quarter

 

HollyFrontier Corp (HFC) – Energy

Trading for 6x current earnings and 9x forward earnings

Recent upward analyst revisions to EPS estimates

55% projected EPS growth for current quarter

 

Western Digital Corporation (WDC) — Technology

Trading for 6.8x current and forward earnings

Upward analyst revisions to EPS estimates in the last 7 days for coming quarters and year

Positive technical trend

 


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