Market Perspective: Schwab Market Perspective: Moving, With Bottlenecks
By Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co, Inc; By Jeffrey Kleintop Senior Vice President, Chief Global Investment Strategist;
Key Points: U.S. economic growth is accelerating as vaccinations rise and social-distancing measures ease, but hopes for a long-lasting spending boom may hit a couple of speed bumps. Vaccine rollouts in major countries are proceeding at different speeds, but stock market performance contradicts what vaccination data would seem to imply for investors. Meanwhile, inflation adjusted longer-term Treasury yields have risen as investors anticipate stronger economic growth.
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Sector Rating Updates:
Consumer Discretionary: Marketweight
- Tesla and Amazon led Consumer Discretionary lower in February.
- The sector's COVID laggards have been strong to begin the year.
- Sector model is marketweight, matching our recommendation.
- WTI was up 18% in February and has now risen 27% in 2021.
- The physical oil market has firmed up and the Total Petroleum Inventory Model is on a buy.
- We have Energy on watch for an upgrade.
- Chemicals, the largest industry, has been weak to begin 2021.
- Materials' Emerging/Developed Equity Momentum indicator turned bullish on January 21.
- Higher oil prices and a stronger dollar are headwinds for the sector.
- Rising rates and steepening yield curve are bearish for bond proxy sectors.
- Utilities' dividend yield is falling relative to the 10-year Treasury.
- A choppy market could benefit defensive sectors, but our base case is for a continuation of the bull market.
- Financials was the second-best performing sector in February.
- Higher rates and a steeper yield curve are positives, pandemic loan growth is a negative.
- The sector model upgraded Financials to overweight in February, matching our recommendation.
Health Care: Marketweight
- Second-worst performing sector in February.
- High levels of uncertainty surround sector following new presidential party leadership.
- Overall sector model composite score is the lowest in almost four years.
- Our Airlines Scorecard turned bullish in February.
- Congress likely to shift focus to infrastructure following the COVID relief package.
- Size and funding of bill will likely prove biggest challenges.
- Technology has been in a tight relative trading range since September.
- Hardware weakness has been partially offset by strength in Semiconductors.
- Breadth deterioration could be an early warning of a breakdown
Real Estate: Marketweight
- Sector model and REITs Industry Scorecard have bullish macro indicators, but bearish technical indicators.
- The REITs Industry Trend Model is overweight Hotel &Resort REITs.
- Mean reversion potential makes the sector a top bounce back candidate.
Consumer Staples: Underweight
- FANMAG broke back below its September 2 high on February 22.
- Media-related names have been strong, telecom-related weak, and tech-related rangebound.
- Sector model has bullish external and bearish internal composites.
Communication Services: Marketweight
- Consumer Staples' five largest companies are trading below their relative 200-day moving averages.
- Consumer Staples is currently the most negative-rate sensitive among all sectors.
- The sector's median growth estimates for FY 2021 and FY 2022are well below the S&P 500.