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No news is good news, as the saying goes, and that’s certainly true of the Weiss Ratings Model. There hasn’t been much over the past couple of weeks to change its recent bullish leanings.
Among the various sectors, only those that I’ve highlighted over the past few weeks (including financials, industrials, materials, and even parts of the energy sector) seem to be durably in favor in terms of the ratings set, though. But I think I may see some glimmers of hope in this end-of-quarter week.
For instance: I’ve been somewhat surprised to see that consumer staples and discretionary stocks have lagged the market overall year-to-date. The Consumer Staples Index was down 0.85 percent, and CD Index down 3.32 percent, versus an S&P 500 up 0.93 percent year-to-date as of Tuesday, as consumer spending trends seem to be as resilient as ever in the still-weak economic recovery the U.S. and the world are undergoing.
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| The consumer discretionary sector could be set for an upswing. |
Due to the dissonance between expected profits and stock price movement captured by the Ratings Model, there will probably be good opportunities to re-enter some of the most promising consumer names in the market over the coming months, mainly on the discretionary side. Ratings for consumer names, despite some tough times in the market for their shares, are seeing the beginnings of an upswing here. That kind of resilient ratings revival can augur a resurgence in share prices, in my experience.
Early warnings derived from the Ratings Model late last year indicated that it might be time to eschew consumer sectors and begin a deliberate entry into more pro-cyclical names. I am glad to have avoided some of the drubbings given to some high-profile consumer industries, of course — like retail. But the survivors of that localized pullback are settling back in right now, and I’ll be using the Ratings framework to assess companies with the best potential to outperform as we move forward.
I will probably retain an exposure to consumer staples in my Ratings Portfolio for now. However, as with some of the other sectors the Ratings Model is favoring, I am poised to add exposure to the more discretionary side at any time.
Other than consumer stocks, I’m looking to boost exposure in tech and other pro-cyclical sectors. But given the recent breakout in terms of the ratings set, I’ve also been revisiting the financials lately. My original plan for 2014 was to equal-to-overweight financials with the “overweight” part set to be early in the year. My new analysis of key members of the financial sector, though, leads me to be more inclined with evident changes in the ratings set toward increased exposure near term, which may extend into the latter half of the year. The sector is the best performer year-to-date on the S&P 500 (up 7.3 percent as of Tuesday’s close), but I think the outperformance could be near an end. This is borne out in the ratings results, as well.
The elephant in the room, of course, is healthcare …
Second-best performing sector year-to-date, solid fundamental outlooks, and a double-digit allocation in the S&P 500 index. But the ratings set is notably light on opportunities in this sector, and in my view, we need to use extra caution here during 2014.
Energy is the opposite. I think its underperformance thus far this year is a clear buying opportunity. It could be volatile, but it’ll be a sector we want exposure to as 2014 turns into 2015.
Best,
Don Lucek
