Home 2021 Commentary: Paul Ebeling on Wall Street

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The Bull trend is still North on the rotation” — Paul Ebeling

Reviewing the month’s sector performances shows every S&P 500 sector positive in March, including utilities (+9.4%), industrials (+8.8%), materials (+8.6%), and consumer staples (+8.3%) up more than 8.0%, representing a mix of cyclical and defensive-oriented leadership. The IT sector (+1.6%) lags the broad market so far this month.

What happened last week

Q-1 Y 2021 ends Wednesday and Wall Street has built a case for stocks to rise even further this year.

With the composition of the government now confirmed and Democratic lawmakers in control of both the House of Representatives and Senate, strategists are seeing more fiscal stimulus boosting consumer spending, the economy and corporate profits. This is set to lay the groundwork for a stronger recovery once the vaccine rollout reaches much of the population, the Street analyst say.

These risk-on catalysts will come with opposing forces, including rising interest rates and the specter of a less accommodative Fed and higher corporate taxes under the Biden administration as the economy emerges from the VirusCasedemic chaos.

Nevertheless, with these factors in mind, most Street strategists believe that stocks will rise even more strongly this year than they believed at the end of Y 2020.

Shayne and I agree.

By sector our Tops picks are energy, as it forecasts West Texas Intermediate (WTI) Crude Oil will approach 80bbl by year-end, and financials, with the 10-yr Treasury yield forecast to end the year between 2% and 2.25%. I have raised my S&P 500 call 100pts to 4,250 by year end.

Growing GDP should result in higher revenues (every 1% in GDP is a 2.5-3% change in sales), and an even greater gain in EPS given operating leverage, that plus rising rates, copper and oil prices a big plus for Industrials, Energy, and Materials bolster this outlook.

What will happen this week

Investors looking for ways to protect themselves from a potential market downturn and rising inflation have been warming to Utilities, sometimes seen as bond substitutes, as attractive alternatives, and are defensive.

The S&P 500 utilities index has outperformed the broader market this month, rising 9.3% so far compared with a 4.3% gain in the benchmark index and leading gains among sectors for March.

Driving the gains is a defensive move by investors to position themselves against a potential slide in equities, with worries mounting over higher inflation as seen in the rise in 10-yr Treasury yields and over pricey stock valuations.

Utilities tend to do better in a downturn because they pay dividends and offer stability. They are a little defensive positioning.

Just In: Visa (NYSE:V) said early Monday it will allow the use of the cryptocurrency USD Coin to settle transactions on its payment network, the latest sign of growing acceptance of digital currencies by the mainstream financial industry.

Have a healthy week, Keep the Faith!

 

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