Download - Sector view of the market for bulls and bears · Independent Research, Indispensable Results. PAGE 8. FORECAST: Pandemic Predictions • Tailwinds – Large & Swift Fiscal & Monetary

Independent Research, Indispensable Results

Sector view of the market for bulls and bearsSam Stovall, Chief Investment Strategist SEPTEMBER 22, 2020


AGENDA: Review & Preview

• Early Expectations for 2020

• The Covid-19 Catastrophe

• Where We Go From Here

– Post-Bear, New All-Time Highs

– Presidential Election Patterns

• Investment Strategies


2020 EXPECTATIONS: S&P 500 Annual Price Returns Since WWII

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data through 9/11/20.

Political Num. ofParty Presidents % Chg. Up? % Chg. Up? % Chg. Up? % Chg. Up? % Chg. Up?Democrats 6 16.7% 89% 4.3% 56% 13.3% 78% 10.5% 89% 11.2% 78%

>Term 1 6 13.7% 83% -3.9% 33% 14.2% 83% 13.7% 100% 9.4% 75% >Term 2 3 22.8% 100% 20.7% 100% 11.4% 67% 4.0% 67% 14.7% 83%Republicans 6 0.4% 40% 6.1% 60% 18.4% 100% 2.7% 80% 6.9% 70%

>Term 1 6 1.1% 33% 4.0% 50% 24.3% 100% 8.1% 100% 9.9% 73% >Term 2 4 -0.7% 50% 9.2% 75% 4.7% 100% -9.7% 33% 1.4% 64%Both Parties 12 8.1% 63% 5.3% 58% 16.0% 89% 6.4% 84% 8.9% 74% >Term 1 12 7.4% 58% 0.1% 42% 19.6% 92% 10.7% 100% 9.7% 74% >Term 2 7 9.4% 71% 14.1% 86% 8.1% 83% -2.9% 50% 7.5% 73%

Year 4Year 3 All YearsYear 1 Year 2S&P 500 Price Change 12/31/44


S&P 1500 Sub-Industries Above 200-Day Moving Average

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data as of 8/31/20.

0%

20%

40%

60%

80%

100%

% Above Moving Average -1 Std. Dev. -2 Std. Dev. +1 Std. Dev.

90%


S&P 500 Returns During Virus Concerns

Source: CFRA, S&P Global. Past performance is no guarantee of future results.

1st U.S. 30 Days 60 Days 90 DaysVirus Case % Chg. % Chg. % Chg.SARS 3/12/2003 8.0 16.1 22.5H1N1 3/25/2009 6.4 9.0 10.0MERS 5/2/2014 2.3 4.9 2.6Ebola 9/30/2014 1.1 4.8 6.0ZIKA 2/2/2016 4.7 8.9 9.4Covid-19 1/21/2020 1.6 (30.6) (15.0)Average 4.0 2.2 5.9


Retreat …

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data: 2/19/20-3/23/20.

Regions/Sizes/Sectors % Chg. Best S&P 1500 Sub-Inds. % Chg.Consumer Staples (24.3) Food Retail (1.7)Health Care (28.5) HyperMkts./Super Centers (6.8)Communication Services (28.7) Interactive Home Entertain. (11.3)S&P 500 Growth Index (31.4) Gold (12.5)Info. Technology (31.5) Internet Retail (16.1)S&P Global 1200 (33.7) Drug Retail (16.2)Consumer Discretionary (33.8) Biotechnology (16.7)S&P 500 (33.9) General Merchandise Stores (17.1)Utilities (35.9) Worst S&P 1500 Sub-Inds. % Chg.S&P 500 Value Index (37.0) Homefurnishing Retail (60.6)Materials (37.2) Oil & Gas Refining & Mktg. (60.8)Real Estate (40.2) Textiles (63.7)S&P SmallCap 600 (41.4) Oil & Gas Equipment & Svcs. (64.3)Industrials (41.9) Department Stores (66.8)S&P MidCap 400 (41.9) Mortgage REITs (70.4)Financials (43.3) Leisure Facilities (70.6)Energy (56.4) Oil & Gas Drilling (71.9)Positive Sectors: 0% Positive Sub-Industries: 0%


… & Recovery (Second Strongest Since 1932)

Source: CFRA, S&P Global. Past performance is no guarantee of future results. *Bull market did not last 12 full months. **Data through 9/2/20.

Bull MarketStart 6 Mos. 12 Mos.6/1/32 74.5 121.43/14/35 40.4 76.73/31/38* 39.8 62.24/28/42 24.5 53.75/17/47 11.2 18.66/13/49 19.5 42.1

10/22/57 6.4 31.06/26/62 20.3 32.710/7/66 23.3 32.95/26/70 21.4 43.710/3/74 36.1 38.08/12/82 40.5 58.312/4/87 14.7 21.4

10/11/90 24.4 29.110/9/02 15.3 33.73/9/09 47.3 68.6

3/23/20** 60.0 49.315 30.6 47.8

% Price Chgs.


FORECAST: Pandemic Predictions

• Tailwinds– Large & Swift Fiscal & Monetary Stimulus– Expectations for Positive GDP in 2021 vs a Negative 2020– Wall Street “Looking Across the EPS Valley”– NTM EPS/Inv. Grade Yield = 20% Potential Upside

• Headwinds– Stock Market Seasonality– Ramp-Up in Covid-19 Cases– Growth v. Value Relative Extreme– Gold Prices & Interest Rates Ominous Implications– Democratic Sweep of the Executive & Legislative Branches


Global GDP Growth Projections: 2021 Recovery

Source: Action Economics. Past performance is no guarantee of future results. Data as of 9/11/20.

Regions 2020E 2021EGlobal GDP -3.8% 5.4% >Advanced Economies -5.4% 5.0% >Emerging Economies -2.7% 5.7% >U.S. -3.6% 5.4% >Euro Area -8.1% 5.8% >Japan -5.5% 2.2%

>China 1.0% 7.5%


FUNDAMENTAL TARGETS: Economics & Earnings

Source: CFRA, S&P Global. Data as of 9/11/2020.

S&P 500 EPS 2020E: 129.33 2021E: 164.10S&P 500 Revs. 2020E: -4.2% 2021E: 8.4%Real GDP Grth. 2020E: -3.7% 2021E: 5.3%Core PCE 2020E: 1.4% 2021E: 1.8%Fed Funds Rate 2020E: 0.38% 2021E: 0.13%10-Year T-Note 2020E: 0.82% 2021E: 0.98%Exchange Rate 2020E: 109.2 2021E: 106.1WTI Avg. ($) 2020E: 39.88 2021E: 46.30


Looking Across the Earnings Valley

Source: CFRA, S&P Global. Data as of 9/11/2020.

1.3%

-3.2% -13.5%-21.1% -31.7%-14.7%

26.9%44.2% 33.7%

-75.0%

-25.0%

25.0%

75.0%

S&P 500 S&P Developed Ex-U.S. BMI Index

S&P Emerging BMIIndex

2019A 2020E 2021E


EPS Retreat & Recovery

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data 9/11/2020.

Operating EPS Y/Y % chgs.S&P 500 Sector Q1A Q2E Q3E Q4E Year Q1E Q2E Q3E Q4E YearCommunication Services (10.3) (21.7) (22.2) (18.7) (18.3) 6.2 26.0 35.4 26.5 23.2Consumer Discretionary (57.5) (65.4) (39.7) (24.6) (46.8) 94.6 NM 58.0 48.2 82.7Consumer Staples 6.8 (4.6) (6.8) (2.5) (2.1) 1.2 10.4 13.3 11.1 9.1Energy (29.7) (169.4) (109.4) (84.0) (104.1) (42.7) NM NM NM NMFinancials (22.8) (51.1) (27.1) (26.5) (32.1) (0.6) 58.2 18.3 31.7 23.8Health Care 5.4 2.6 (5.7) 1.5 0.9 9.7 8.5 21.6 19.2 14.6Industrials (30.2) (80.6) (61.1) (34.5) (52.2) 7.2 367.5 122.6 61.7 87.3Information Technology 5.4 3.7 (3.0) 2.6 2.1 11.8 13.7 21.4 16.6 15.9Materials (14.6) (29.3) (19.6) (4.9) (17.9) 18.9 45.0 36.0 22.6 30.5Real Estate 10.2 (47.4) (46.4) (43.3) (33.9) (36.9) (3.1) 26.9 28.2 (2.7)Utilities 3.9 6.0 (4.4) 0.3 0.9 2.1 (1.8) 5.6 9.2 3.7S&P 500 (11.9) (33.1) (24.2) (14.7) (21.1) 7.9 44.2 32.2 26.8 26.9S&P MidCap 400 (29.2) (50.9) (29.9) (16.6) (31.7) 23.2 90.5 47.2 31.7 42.1S&P SmallCap 600 (85.2) (71.1) (44.5) (22.1) (53.3) 548.7 NM 81.0 42.4 109.5

20212020


Stocks Typically Took a Breather After Post-Bear New Highs


Start End -20% Bottom Date Mos. Date Mos. % Chg. Date Mos.9/7/29 6/1/32 51 998

7/18/33 3/14/35 3 6043/6/37 3/31/38 185 390

11/9/38 4/28/42 142 12665/29/46 5/17/47 103 3536/15/48 6/13/49 363 3638/2/56 10/22/57 445 446 9/24/58 11 8/3/59 10 (14) 12/12/61 39

12/12/61 6/26/62 167 196 9/3/63 14 10/28/63 2 (7) 2/9/66 292/9/66 10/7/66 201 240 5/4/67 7 5/8/67 0 (7) 11/29/68 19

11/29/68 5/26/70 426 543 3/6/72 21 8/14/72 5 (5) 1/11/73 101/11/73 10/3/74 320 630 7/17/80 69 9/22/80 2 (5) 11/28/80 4

11/28/80 8/12/82 451 622 11/3/82 3 11/9/82 0 (7) 8/25/87 588/25/87 12/4/87 55 101 7/26/89 20 10/9/89 2 (10) 7/16/90 127/16/90 10/11/90 87 87 2/13/91 4 4/17/91 2 (6) 3/24/00 1093/24/00 10/9/02 353 929 5/30/07 56 7/19/07 2 (9) 10/9/07 410/9/07 3/9/09 274 517 3/28/13 49 5/21/13 2 (6) 2/19/20 832/19/20 3/23/20 22 33 8/18/20 5 8/24/20 0 ??? ?? ??

Average since 1929: 215 489 24 2.6 (8) Average 37Average since 1946: 251 389 24 2.6 (8) Median 24

Garden Variety (20%-40%): 211 326 14 2.8 (8)Mega-Meltdowns (40%+): 221 788 58 1.9 (7)

to hit a new all-time high.

Next BearAfter Bear Bottom

The bear market of 1929-1932 took until Sept. 22, 1954

New ATH Set Next Decline AfterBear Market Calendar Days New All-Time High


After Democrats Score a “Trifecta” (Presidency, House & Senate)


Election NextYear President Nov Dec Year1948 Truman (10.8) 3.6 9.91960 Kennedy 4.0 4.6 23.11976 Carter (0.8) 4.7 (11.0)1992 Clinton 3.0 1.7 6.82008 Obama (7.5) 0.8 23.5

(2.4) 3.1 10.4

% Changes

Averages


Party Majorities & the S&P 500

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data 12/31/1944-8/31/2020.

POLITICAL SCENARIOS Avg. Chg. Years FoAUnified Government 10.6% 30 77% >Democratic President 9.8% 22 77% >Republican President 12.9% 8 75%Unified Congress 7.4% 32 66%

>Dem. Pres./Rep. Congress 13.0% 10 60% >Rep. Pres./Dem. Congress 4.9% 22 68%Split Congress 8.6% 13 69% >Democratic President 13.6% 4 75% >Republican President 5.2% 10 60%All Years 8.7% 76 70%


The Presidential Predictor


Election S&P 500Year Democrat Republican % Chg. Reelection Replacement1944 FDR Dewey 0.6 11948 Truman Dewey 4.4 11952 Stevenson Eisenhower (3.5) 11956 Stevenson Eisenhower (7.7) 01960 Kennedy Nixon (3.8) 11964 Johnson Goldwater 2.0 11968 Humphrey Nixon 5.8 01972 McGovern Nixon 3.9 11976 Carter Ford (0.5) 11980 Carter Reagan 4.8 01984 Mondale Reagan 10.2 11988 Dukakis Bush 2.6 11992 Clinton Bush (1.3) 11996 Clinton Dole 10.2 12000 Gore Bush (0.1) 12004 Kerry Bush 2.6 12008 Obama McCain (23.6) 12012 Obama Romney 2.4 12016 Clinton Trump (2.2) 12020 Biden Trump ? ? ?19 Averages 82% 88%

Correct Prediction?Candidates


Sector Winners & Losers Three Months Before the Election


Sector Performances Usually Depends on the Prevailing Issues

2016 2012 2008 2004 2000 1996 1992 Sector Beat MktTech 4.0 Fin. 7.2 C.S. -10.3 Util. 8.7 Util. 17.2 Fin. 17.6 H.C. 7.0 Ene. 6Fin. 2.2 C.D. 6.0 H.C. -16.8 Ene. 7.1 C.S. 14.2 Tech 16.0 Tech 7.0 Fin. 6Ene. 0.4 Mat. 4.3 Com. -18.5 C.D. 6.7 Fin. 11.5 Ene. 12.6 Mat. 4.0 HC 5Ind. -1.7 H.C. 4.0 C.D. -21.3 Mat. 4.8 H.C. 9.9 H.C. 11.9 Ene. 3.4 Ind. 5

S&P 500 -2.2 Ene. 3.0 Util. -21.8 Com. 3.1 Ind. 8.8 S&P 500 10.2 Util. 2.5 Util. 4C.S. -3.5 Ind. 3.0 S&P 500 -23.6 Fin. 2.9 Ene. 8.2 Ind. 10.1 Com. 1.1 CD 3Mat. -3.8 S&P 500 2.4 Fin. -26.3 Ind. 2.8 S&P 500 -0.1 Mat. 7.4 Ind. 0.2 Com 3C.D. -4.6 C.S. -0.8 Tech -27.0 S&P 500 2.6 Mat. -0.4 C.D. 6.6 Fin. -1.1 Mat. 3Util. -5.0 Tech -0.9 Ind. -28.3 Tech 2.6 Com. -1.1 Util. 6.5 S&P 500 -1.3 Tech 3

H.C. -10.4 Util. -2.2 Ene. -30.0 C.S. -0.6 C.D. -5.2 C.S. 6.4 C.D. -1.6 CS 2Com. -13.6 Com. -3.9 Mat. -38.5 H.C. -2.0 Tech -13.7 Com. -0.6 C.S. -2.0 RE NA

S&P 500 Price % Returns 7/31-10/31 Summary


Growth’s Relative Performance Extreme: Highest in History!


Rolling 12-Month Price Return: S&P 500 Growth vs. S&P 500 Value

(30)

(20)

(10)

0

10

20

30

40

P.P. Diff. +2SD +1SD -1SD -2SD


S&P 500 Tech vs. the Market

Source: CFRA, S&P Global. Data: 8/31/20.

Lookback S&P 500 Tech SectorYTD 2020 8.5 29.8

1 Year 19.6 55.93 Years 12.3 29.05 Years 12.2 26.5

10 Years 12.8 20.815 Years 7.3 13.525 Years 7.6 11.3

CAGR %


Investment Strategies

• Let Your Winners Ride

• Taming Tech

• Overseas Opportunities


Let Your Winners Ride; Cut Your Losers Short

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data: 12/31/89-8/31/20. F.O.: Frequency of Outperformance.

CAGRs Based on Trailing 12-Mo. Returns. IMP: Buy Top 10%, Hold Until Falls Out of Top 30%

3.0%

8.3%

10.8%

13.0%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%

Bottom 3Sectors

S&P 500 Top 4 Sectors Ind. MomentumPortfolio

73%F.O.

70%F.O.

30%F.O.


CFRA’s Model Portfolio 3-Year CAGRs

-0.1%0.9%

3.7%4.3%4.8%

6.7%7.6%7.6%8.0%

9.1%9.4%9.7%10.1%

11.3%14.1%

18.1%

-5% 0% 5% 10% 15% 20%

Focus Stock of the Week Platinum

Small/Mid-Cap Growth Fair Value

Contrarian ETF Powerpicks

Top Ten S&P Equal Weight 500

Total Return Global Large Cap Diversified ETF

Mid-Year Powerpicks Investment Ideas

High-Quality Capital Appreciation World Growth ETF

Industry Momentum Warren Buffett (Intrinsic Value)

Source: CFRA, As of 8/31/20.


Industry Momentum Constituents

Source: CFRA, S&P Global. Price Returns as of 9/11/20.

Sector Sub-Industries Entry Date Price % Chg.Cons. Disc. Computer & Electronics Retail 8/31/20 (3.4)

General Merchandise Stores 8/30/19 24.7Home Improvement Retail 5/29/20 14.7Homebuilding 7/31/20 6.0Internet & Direct Marketing Retail 5/29/20 26.0

Cons. Staples Food Retail 3/31/20 14.1Health Care Biotechnology 4/30/20 (2.2)

Managed Health Care 4/30/20 (0.4)Industrials Diversified Support Services 2/28/18 91.3

Trading Companies & Distributors 7/31/20 0.5Trucking 4/30/20 34.3

Info. Tech. Application Software 6/30/20 10.9Data Processing/Outsourced Svcs 3/29/18 68.3Interactive Home Entertainment 2/28/20 32.0Semiconductor Equipment 9/30/19 15.1Semiconductors 1/31/20 19.9Systems Software 9/28/18 71.7Tech. Hardware/Storage/Peripherals 11/27/19 59.8

Materials Copper 8/31/20 4.2Gold 2/28/20 27.5Industrial Gases 6/28/19 27.2

Real Estate Industrial REITs 11/27/19 8.0

Sub-Industry


CORRELATION: The “Free Lunch” Portfolio

Source: CFRA, S&P Global. Past performance is no guarantee of future results. Data: 12/31/89-12/31/19.

An equal weighting of Tech & Staples delivered a similar return to Tech, but with 40% lower risk

12.4% 10.0% 12.4%

30.5%

17.5% 18.5%

0.41

0.57 0.67

0%10%20%30%40%50%60%70%80%

S&P 500 Info. TechnologySector

S&P 500 Index Portfolio: 50% Cons. Staples,50% Technology

Compound Annual Growth RateStandard DeviationReturn/Risk Ratio


The “Free Lunch” Portfolio by Region & Size

Compound Annual Price Returns: 12/31/94 - 12/31/2019


8.1%9.4% 10.0%

6.2%

10.8%11.5% 11.5%

9.8%

5%

7%

9%

11%

13%

15%

S&P 500 S&P EW 500 S&P SC 600 Global 1200

100% Benchmark Index 50% Consumer Staples and 50% Info. Technology


Overseas Opportunities?


Rolling Five-Year Relative Total Return S&P Developed ex-US BMI vs S&P 500

-

50

100

150

200

250

300 Rolling 5-Yr. Relative Strength +1 Std. Deviation -1 Std. Deviation


Overseas Opportunities?


Relative P/E S&P Developed ex-US BMI vs S&P 500

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

+2 S.D.

+1 S.D.

-2 S.D.

-1 S.D.


Summary

• Bulls Last an Average of 37 Mos. After Post-Bear New Highs• Collapse from Exhaustion Average 2.5 Mos. Later, Falling ~8%• Triple-Play Election Outcome Could Trigger Tax Selling• Growth-Value Vertigo Made the Market Vulnerable to a Sell-Off• Investment Options:

– Go with the Flow (Momentum)

– Diversify Tech holdings with Consumer Staples (Correlation)– Search Overseas (Dollar Weakness)


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