The Quant View: Market Inching Ahead

The market continued to inch forward today, as it did during the holiday-shortened past week. In fact, the S&P 500 set an 18-month high today at 1187.73 and closed near the high. 

The news behind this upward crawl was a mixture of economic reports. Last week we had a disappointment here and there, but for the most part the numbers were better than expected. Friday's employment report - which is being felt today since the market was closed on Friday -- was up 162,000. That was not quite the hoped-for 200,000, but it was much better than the decline in jobs the previous month. 

This morning, pending home sales were up a quite surprising 8.2%, having been expected to be flat; they were down almost the same percentage a month ago. And, to put a little icing on our market cake, the ISM came in at 55.4, a bit above the projected 54 and last month's 53. 

The news will be slim the rest of the week. Few corporate reports are scheduled, and the only economic reports of any real significance will be chain store sales and initial jobless claims on Thursday.

Market Stats.  All styles and caps were up a small amount last week.  Just to make things interesting, Mid-cap (All) was the leader, up +1.5%, while Small-cap Growth was the worst, up +0.5%.  You can see on the market stat tables that Mid-caps and Small-caps have maintained a fairly substantial lead over the past 1, 3, 6 and 12 months. 

With regard to sectors, our projected leader last week was Energy, and indeed it came in second, up +4.3%, but it was surpassed by Materials which gained +5.9%, being heavily impacted by the weakness of the dollar.  Financials turned in another strong week, up nearly +2% and Utilities found itself in the third spot among these leaders, up + 2.6%. 

Dragging the bottom once again was Consumer Discretionary, Information Technology and, for the first time in a while, Healthcare.  Telecom, which had been projected as second highest ranked sector for the next 30 days, came in about the middle of the pack.

Looking forward, we continue to favor Energy, Financials, Healthcare and Telecom but would avoid Consumer Discretionary, Industrials, and Consumer Staples.

What this Market Wants.  We begin a new quarter this week, having completed a very favorable first quarter. The value component of each market cap did much better than the growth component in Q1—Small-cap Value led, up more than +10%, while Large-cap Growth trailed, up only +4.8%—so I would conclude, at least for the time being, that this market favors the value style, and within that style, small- and mid-cap stocks, particularly those in the Energy, Financial and Telecom sectors.  As has been the case for most of the last year, the market frowns upon overvaluation, poor cash flow, and high debt levels.

Stocks to consider are below the market stat tables.

Cap/Style Overview

Current Sector Performance

Best & Worst Industries

The Sabrient SectorCast  

4 Stock Ideas for This Market

This week, I started with the Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com), but I instead geared it to small and mid-cap stocks. Then, I asked for both Buys and Strong Buys, and up-weighted Technicals slightly. I also focused the search on Energy, Financials, Healthcare, and Telecom to identify four new stock ideas.  Although strength in our Telecom rankings primarily comes from large-cap foreign ADRs, I managed to find one mid-cap service provider to telecom companies worldwide that gets a Buy from the Sabrient ratings algorithm.

Green Plains Renewable Energy (Nasdaq: GPRE) - Energy
Protective Life Corp. (NYSE: PL) - Financials
Valeant Pharmaceuticals Intl (NYSE: VRX) - Healthcare
Syniverse Holdings (NYSE: SVR) - Telecom