Stock Market Sentiment Is Turning More Bullish – For The Week of May 21
Michael kramer and the clients of mott capital own shares of Swks
The bull run in stocks was put on hold last week, but the current run is likely not over. In fact, there appears to be a clear separation that has taken place since the start of May. We find that Biotech and Semis are the leaders this month, with each up by over 7.5 percent. Followed by a group of Technology, Energy, the Small Cap Russell 2000, and Materials all up about 5 percent. Meanwhile, the S&P 500, Financials, Health Care, and Discretionary are all up about 1 to 2 percent. Finally, Utilities and Staples are down on the year.
What Is The Market Telling Us
It tells us how the market is feeling on a couple of topics. The underperformance of the utilities and the staples is an apparent concern by investors regarding the more interest rate sensitive portions of the equity market. As interest rates rise, dividend yields must increase, and that puts downward pressure on the stock prices in the group. Additionally, it would also suggest a rotation out of the defensive part of the market.
Risk On Back
Meanwhile, the risk-on parts of the market, Biotech, and Semis are in favor and that would suggest that investors are feeling more comfortable moving back into the riskier more volatile parts of the market. It would indicate to me that if these two sectors continue to perform well, the market will continue to rise.
Even the second tier of leaders, in Technology, Energy, Small caps, and Materials are another layer of risk, and again it too supports the continued rise in the broader S&P 500.
Looking at The Semis
When we look at the semiconductors, AMD has been the best performing stock this month rising by about 20 percent, followed by Qorvo, Micron, Teradyne, and Skyworks.
Teradyne’s significant gains in May are more of a bounce back, because even with the 15 percent rise thus far in May, shares are still down by nearly 25 percent from their peak earlier this year. The poor company guidance led to be a big gap down in the technical chart. It seems like the stock wants to fill that gap back to around $40, but one must worry that once filled, the stock may continue that trend lower.
Qorvo has been a stock stuck in a trading pattern of up and down since the start of 2017. After a significant gain; shares could be heading back the other way.
Micron gave us the big breakout, but to this point, resistance at $54 has proved challenging. But what I take as a positive is that that stock has been rising on more volume, and the trend, for now, continues to be higher. I still think we reach around $61.50.
Waiting On Qualcomm/NXP
It will be interesting to see given the setup in these stocks if there shall be a rotation into other parts of the semiconductor space. Remember, we are still awaiting word on the Qualcomm/NXP deal from the regulators in China, regarding a potential approval. If that should happen, I think the sector will get an extra jolt, in a sign that that trade tensions has been easing between the US and China.
For the most part, we need to continue to see the risk on the part of the market stay hot, and investors continue to move back into these parts of the markets.
Perceptions and Mood
At this point, much of where stock prices go will be driven by sentiment, mood, and perception more than anything else. Fundamentals are solid, with GDP for the second quarter tracking at 4.1 percent, according to GDPNow, through the mid-way point of the quarter. Meanwhile, earnings season for the first quarter of the year were very strong.
According to Dow Jones S&P Indices of the 91 percent of the companies in the S&P 500 to have reported results 77.25 percent beat estimates, while sales grew by about 9.5 percent versus a year ago. The S&P 500 is trading at just 16.7 times 2019 earnings estimates of $163.33 per share.
It is a robust fundamental setup, while the bulls appear to be coming back.
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