Weekly Commentary May

Ed Mertiri |

Schwab Market Perspective: Springing Forward

By Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co, Inc; By Jeffrey Kleintop Senior Vice President, Chief Global Investment Strategist

May, 2021 

Key Points: The U.S. economy is accelerating quickly, with gross domestic product growth expected to be as high as 8% this year—the fastest pace since 1983. Globally, we’ve just experienced the sharpest economic “V” in history—a deep recession and rapid recovery within just five quarters. Longer-term bond yields have continued to rise, reflecting the economy’s faster than-expected recovery from the COVID-19 crisis, as well as growing inflation concerns

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Sector Rating Updates:


Consumer Discretionary: Marketweight

Key Points

  • Tesla and Amazon were drags on Consumer Discretionary in Q1.
  • The sector's COVID laggards have been strong to begin the year.
  • Gold/bond ratio is bearish for consumer sectors like Consumer Discretionary.
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Energy: Overweight

 

Key Points

  • Crude oil fell and Energy underperformed in March.
  • Sector is short-term overbought, but long-term oversold. 
  • We upgraded Energy to overweight on March 11.

 

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Materials: Marketweight

 

Key Points

  • Materials has historically been a good performer in reflationary environments.
  • Materials' Emerging/Developed Equity Momentum indicator turned bearish on March 15.
  • Higher oil prices and a stronger dollar are headwinds for the sector.

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Utilities: Marketweight

Key Points    

  • Defensive sectors bounced back in March.
  • As utilities are mostly regulated, higher capex spending should lead to higher EPS growth.
  • We upgraded Utilities to marketweight on April 15.
   

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Financials: Overweight

Key Points   

  • Financials finished Q1 as the second-best performing sector  
  • Higher rates and a steeper yield curve are positives, pandemic loan growth is a negative.
  • Financials finished March with the highest overall sector model score.

 

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Health Care: Underweight

Key Points

  • Third-worst performing sector in Q1    
  • High levels of uncertainty surround sector following new presidential party leadership. 
  • Short- and long-term breadth indicators are weak.   

   

 

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Industrials: Overweight

Key Points   

  • Congress to shift focus on infrastructure following the passing of the COVID relief package.   
  • Transports have been strong to begin the year.
  • Our Airlines Industry Scorecard turned bullish on March 2.

 

 

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IT: Marketweight

Key Points

  • Technology was the worst-performing sector in March and the second worst in Q1
  • Software and Hardware weakness has been partially offset by strength in Semiconductors.
  • Long-term breadth indicators turned bearish in March, and the sector model downgraded Tech to marketweight.
   

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Real Estate: Marketweight

Key Points

  • Sector outperformed by 200 basis points in March and 300 basis points in Q1.
  • The REITs Industry Trend Model is overweight Hotel &Resort REITs.
  • Mean reversion potential makes the sector a top bounce back candidate.

 

 

 

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Consumer Staples: Underweight

Key Points

  • Third-best performing sector in March.
  • Our Broad Cyclical vs. Defensive Sectors Watch Report continues to favor broad cyclical sectors.
  • Consumer Staples' five largest companies are trading below their relative 200-day moving averages.
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Communication Services: Marketweight    


   
  • Facebook was the only FANMAG component to outperform in March.
  • The sector's media-related names broke down during the month.
  • Bullish external composite is offset by bearish internal composite in sector model.

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