The Quant View: Back in Black

During the last week of April, the market returned to its positive streak, however fitfully and with significant volatility. The market was buffeted early in the week by news of the flu outbreak, and then at mid-week, by a number of positive indicators, including Consumer Confidence and ISM, then by weaker-than expected GDP and construction numbers. Continued unpleasant news from the auto industry also impacted several of the sessions.

When it was all said and done, the positive news slightly carried the day, as it has so often in recent weeks. Despite this big market rally (and the associated pockets of overvaluations), the overall market valuation is still below 1987 post-crash levels in my view, which has me maintaining my positive outlook on the market. The overextended pockets include some of the banks and technology stocks.

Style & Cap Overview

Leading the week was Small-cap Growth, up 2.6%, while Small-cap Value was the worst at +0.9%. All other style-caps were up a little over 1%.

The one-month numbers continue quite robust, as do the three-month numbers. Because the six- month period now begins with November (which was a horrid month), the six-month results have reverted to all negative numbers.

Current Sector Performance

From a weighted sector viewpoint, Materials, Utilities and Energy did the best last week, with Consumer Discretionary, Financials, and Telecom at the bottom.

Unweighted results were fairly even across most sectors, except Financials, which were barely positive.

Best and Worst Industries

Paper and Forest Products had its second great week in a row, up 9%, among the weighted industry results, but it was bested by Life Sciences (always a volatile industry), which went from the worst to the best in one week.

Airlines were adversely affected by the flu scare and ended up with the worst industry results, down -8% for the week. Consumer Finance and REITs continued in the doldrums as well.

Forward-Looking Sector Rankings

Our forward-looking rankings now have Telecom, Utilities and Energy in a virtual dead heat for best score, with Financials and Information Technology at the bottom. Materials, which was recently very strong, has fallen due to less attractive valuations, but remains well above the bottom scores.

Wrapping Up

Despite the profit-taking from two weeks ago, the market tone remains mostly positive as it continues to shun most negative news and focus on the emerging positives. In general, corporate earnings have been better than expected.

Absent a large shock, which could of course come from the final results of the bank stress test due this week or new more discouraging labor statistics, we expect the market to continue to rise, as money flows back into equities and short covering continues to fuel weak stock recoveries.

I ran a QMAXX search using the GARP (Growth at a Reasonable Price) preset search on small & mid-cap stocks, and found the following stock ideas at the top of the list:

Oriental Financial Group (NYSE: OFG) - Financials
Deckers Outdoor (Nasdaq: DECK) - Consumer Discretionary
Tessera Technologies (Nasdaq: TSRA) - Information Technology

 

This is a commentary from the 5/5/09 Trader's Talk newsletter.  Click here to receive the newsletter via email. It's absolutely free!