The Focus on News Headlines

Monday, April 24, 2017 - Stocks broke their two week losing streak last week as investors brushed off disappointments on healthcare reform and foreign jitters leading the S&P 500 to rise up +0.85 and to close at 2348.69 not far off its all-time high of 2395.96. The NASDAQ 100 and NASDAQ Composite both hit new highs giving YTD price returns of + 11.89 and +9.8%. Investors increasingly began to sober up on the likely timeline necessary for Republicans to deliver on anticipated economic “goodies” like infrastructure spending, healthcare reform and tax cuts. By late last week, investors began to focus on the next moves by the Trump Administration particularly in foreign policy and the planned announcement this week on his long anticipated tax cut proposal. Investors brushed aside concerns of a government shutdown this Friday.

Bears seem concerned that the popular indexes are being driven by a small number of tech stocks providing index gains with the ten largest stocks contributing to 39% of the S&P 500 index’s first quarter gain accordingly to Birinyi Associates. Yet, history shows that big markets gains are frequently lead by a small vanguard of stocks leading the charge. We continue to see elements that make us believe that the animal spirits unleashed by the excitement of the Trump Presidency are alive and well.

On the international front, there is no end to worries ranging from North Korean saber rattling, French elections to the breakdown of law and society in Venezuela – a major oil producer. For this reason, Gold continues to be an attractive store of value – with its price up nearly 12% YTD as are Treasuries with a continued downward drift.

Macron et Le Pen!  Que’est que c’est?  So the outcome of the first round of French elections shows that the traditional divide between leftist and rightist parties in Western Democracies has given way to a new divide between Globalists and Nationalists with Macon representing the former and Le Pen the latter. Both are considered to be relative outsiders to electoral politics – another trend likely to continue for the short term.

While European Markets rallied this morning on the election outcome, since Macron is favored for the May 7^th runoff, let us not forget that pollsters have largely missed major upsets the past 12 months. An upset by Le Pen could provide a buying opportunity. Also, BREXIT appears to be heading to a harder landing than expected. Expect debt and insolvency issues for Greece and Italy to reappear in the headlines as well. Nevertheless, European and foreign markets in general look less expensive than US equities. Our Models continue to favor the Trump trade betting on Reflation focusing on Financials, particularly Regional Banks, Materials, and Industrials with smaller bets on Technology and Energy.

In looking at our ETFG Fund Flows for March, investors favored Financials with over $556.97M in new funds flowing into ETFs.  Likewise, Industrials saw positive flows of $194.86M and Technology $22.36M.  Utilities saw significant inflows of $111.55M due to continued outlook for low interest rates and deregulation changes that favor some utilities.

Looking at our Weekly Percentage Gainers in our Quant Scores, VGT, DGRW, KIE, XLF, and REMX moved up.  Our top 25 Quant Rankings show the following ETFs with relatively high scores of 60 or better to implement the above themes:  CNTR, EWY, PGJ, FNI, PZI, DWAS, EWSC, EEM, IEV, WMW, JHMI, EWQ, QQQ, EQWL and EFA to name just a few. We suggest looking over the Quant Movers Lists and Select Lists to zero in on attractive plays.

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