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Baird Market and Investment Strategy
Weekly Market Notes
February 9, 2015
Dow Industrials 17824
S&P 500 2055
Please refer to Appendix – Important Disclosures
Summary
The U.S. Economy a Beacon of Strength
Economy: Manufacturing slows but service
sector growth continues north; labor markets
surprise on the upside
The equity markets roared back last week recapturing nearly all of the losses from
January’s disappointing performance. The rally in stocks came on the heels of a
Fed Policy: Strong wage report prompts
7.0% five-day rally in crude oil. Rising prices for oil and other commodities
rise in expectations of Fed rate hike
including copper put aside, at least for the time being, the notion that the global
economy was dangerously close to recession. The domestic economy also
Sentiment: Indicators remain mixed. AAII
exhibited signs that growth was accelerating following Friday’s report from the
survey shows increase in bears but active
Labor Department. Non-farm payrolls were much stronger than expected in
money managers fully invested
January. Additionally, revisions to the prior two months were substantially higher.
The data showed that the U.S. economy created one million jobs the past three
Strongest Sectors: Consumer
months. The jobs report also included the fact that the average weekly hours are at
discretionary and materials moving into top
the best level in more than eight years and the improvement in hourly earnings in
positions – bullish ramifications for market
January was the best since 2008. The good news supported the consensus view
that the Fed will raise interest rates later this year. We continue to believe a rate
hike is unlikely given the instability in the global economy. Nevertheless, should Fed
Chief Yellen decide to take action on rates, it is not expected to have a negative
influence on stocks. According to Ned Davis Research, the stock market has historically rallied into the first rate hike by the Fed
and trended higher six months following the initial rise in rates.
Since November, stocks have traded between 1970 and 2070 using the S&P 500 and we anticipate that will continue as we move
deeper into the first quarter of 2015. Looking further out, a breakout is expected to be on the upside given the improving
economic fundamentals and technical condition of the equity markets. The strong combination of improving wages and lower
energy costs will provide consumers the ability to improve their balance sheets. Over the long term, the economy and financial
markets do best when consumers are adding liquidity by saving more. Technically, the breadth of the market improved
significantly last week. The percentage of groups within the S&P 500 that are in uptrends climbed to 70% from 67% the previous
week. Despite last week’s performance ranking as the best in 24 months, investor enthusiasm remains muted. Until investor
optimism becomes excessive and deeply seated the longer-term bullish trend is expected to continue.
Sentiment
Current
Previous
Indication
CBOE 10-Day Put/Call Ratio
Below 80% is bearish; Above 95% is bullish
102%
103%
Bullish
CBOE 3-Day Equity Put/Call Ratio
Below 53% is bearish; Above 64% is bullish
65%
71%
Neutral
VIX Volatility Index
Below 16 is bearish; Above 21 is bullish
17.3
20.9
Neutral
American Association of Individual Investors
Twice as many bulls as bears is bearish; more bears than
bulls is bullish
Bulls:
Bears:
35.5%
32.4%
Bulls:
Bears:
44.2%
22.4%
Neutral
Investors Intelligence (Advisory Services)
55% bulls and/or less than 16% bears is considered bearish
Bulls:
Bears:
49.0%
16.3 %
Bulls:
Bears:
53.1.0%
16.3 %
Neutral
National Assoc. of Active Investment Mgrs. (NAAIM)
Below 30% is bullish; Above 80% is bearish
Ned Davis Research Crowd Sentiment Poll
Ned Davis Research Daily Trading Sentiment Composite
Bruce Bittles
Chief Investment Strategist
bbittles@rwbaird.com
941-906-2830
93%
92%
Bearish
Optimism Fading
Optimism Fading
Neutral
Pessimism Fading
Extreme Pessimism
Neutral
Weekly Market Notes
RS Ranking
RS
Current
Previous Trend
Utilities
1
**
1
Consumer
Discretionary
2
**
4
Health Care
3
**
2
Consumer Staples
4
**
3
Materials
Information
Technology
5
7
+
6
6
-
Industrials
7
5
Telecom Services
8
9
Financials
9
8
Energy
10
10
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
-
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
Leaders:
Laggards:
** Denotes Current Relative Strength-Based Overweight Sectors
** 1 = Strongest Relative strength 10 = Weakest Relative strength
Sub-Industry Detail
Independent Power Producers
Home Furnishings; Household Appliances; General Merchandise
Stores; Apparel Retail; Home Improvement Retail; Automotive
Retail; Homefurnishing Retail
Tires & Rubber; Motorcycle Manufacturers; Leisure Products;
Apparel, Accessories & Luxury Goods; Casinos & Gaming;
Broadcasting
Managed Health Care
Drug Retail; Food Retail; Distillers & Vintners
Aluminum
Diversified Metals & Mining; Steel
Home Entertainment Software; Electronic Components
Electronic Equipment & Instruments
Diversified Support Services; Human Resources & Employment
Services
Construction & Engineering; Electrical Components & Equipment;
Construction Machinery & Heavy Trucks; Trading Companies &
Distributors; Office Services & Supplies
Diversified REITs; Office REITs; Residential REITs; Retail REITs
Consumer Finance; Life & Health Insurance; Multi-line Insurance
Oil & Gas Equipment & Services; Coal & Consumable Fuels
S&P 500 Around Six Months Before and After Starts of Fed Tightening Cycles
110.0
110.0
109.5
109.5
109.0
109.0
Average of 13 Cases Since 1928
108.5
108.5
108.0
108.0
107.5
107.5
107.0
107.0
106.5
106.5
106.0
106.0
105.5
105.5
105.0
105.0
104.5
104.5
104.0
104.0
103.5
103.5
103.0
103.0
102.5
102.5
102.0
102.0
101.5
101.5
101.0
101.0
100.5
100.5
100.0
100.0
-6
-5
-4
-3
-2
-1
0
Start of Tightening Cycle
1
2
Source:
3
S&P Dow Jones Indices
4
5
6
Months Prior | Months Post
SSF14_15A_C
© Copyright 2014 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/
Source: Source: Stockcharts
Robert W. Baird & Co.
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Weekly Market Notes
Appendix – Important Disclosures and Analyst Certification
This is not a complete analysis of every material fact regarding any company, industry or security. The
opinions expressed here reflect our judgment at this date and are subject to change. The information has
been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.
ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST
The indices used in this report to measure and report performance of various sectors of the market are
unmanaged and direct investment in indices is not available.
Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the
United States Securities and Exchange Commission, FINRA, and various other self-regulatory organizations
and those laws and regulations may differ from Australian laws. This report has been prepared in accordance
with the laws and regulations governing United States broker-dealers and not Australian laws.
Copyright 2015 Robert W. Baird & Co. Incorporated
Other Disclosures
UK disclosure requirements for the purpose of distributing this research into the UK and other
countries for which Robert W Baird Limited holds an ISD passport.
This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2)
of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are
investment professionals and may not be distributed to private clients. Issued in the United Kingdom by
Robert W. Baird Limited, which has an office at Finsbury Circus House, 15 Finsbury Circus, London EC2M
7EB, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the
Financial Conduct Authority requirements, this investment research report is classified as objective.
Robert W Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services
license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may
differ from Australian laws. This document has been prepared in accordance with FCA requirements and not
Australian laws.
Robert W. Baird & Co.
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