Author: Randy Watts

Randy Watts is Chief Investment Strategist for William O’Neil + Company. Mr. Watts manages William O’Neil + Company’s research department and guides the development of the company’s suite of services. He oversees the strategic direction and focus of the company’s research content, and his buy-side experience provides additional insight that allows the company to leverage its experience and expertise to help clients generate alpha. Mr. Watts has more than 25 years of equity asset management experience with specific focus on large- and small-cap growth stocks. He started his professional career as an Equity Analyst at Freedom Capital Management in Boston, MA. He spent nine years at Westfield Capital Management as an Equity Analyst then as a Partner and Portfolio Manager overseeing a $500+ million growth stock portfolio. Mr. Watts served as a Senior Managing Director for small- and mid-cap growth investments at The Boston Company, where he managed $4 billion in both long and long/short equity portfolios. During his tenure at the Boston Company, he hired, trained, and managed a team of investment professionals. Most recently, he ran a long/short equity hedge fund for Folger Hill Asset Management in New York, NY. Mr. Watts graduated from the University of Virginia with a degree in American Studies and is a Chartered Financial Analyst.

Strategy View: New Bull Market or Bear Rally

Posted on by Randy Watts

Key points:

 

  • Bull/bear scenarios for the current market.
  • Vaguely similar trajectory so far so historical bear markets at ~105 days in. However, net 8% drop in the Dow is less than the median -14% to date.
  • Large corrections scenarios include 2018 and 1998, where the lows were reached fairly quickly relative to longer bears. Keys here were not only a follow-through day and strong moves off the lows (same as now), but a trend forming along with the rising 21-DMA, with no 5% or greater correction for many weeks.
    • 2018, only a minor (two-day breach of the 21-DMA) and no 5% or greater correction for four-and-a-half months.
    • 1998, no breach of 21-DMA and no 5% or greater correction for five months.
  • In terms of up/down legs in bull/bear markets, there is not enough information yet to say which the current market resembles (see below)

Strategy View

Posted on by Randy Watts

Key Points:

 

  • Three to four percent median sales growth expected for Q1 2025 across S&P 500/400/600 groups. Large-caps expect 4% EPS growth (MAG7 +10%), mid-caps +3%, but small-caps 0%.
  • By sector, the best estimates are from Financial, Tech, Transports, and Utility. The worst are expected for Materials and Cyclicals.
  • Estimates are falling into the quarter.
    • -1% downward revision for large-caps over 60 days.
    • -2% for mid-caps.
    • -3% for small-caps.
    • By sector, Financial, Tech, and Utility are the only three which haven’t seen median downward revision.
  • However, full-year 2025 estimates are mostly holding steady. We suspect this will change given the latest round of tariffs.
  • Looking at past periods when the S&P 500 has broken and stayed below the 200-DMA (for at least three days), the median time below is 19 days and the median percentage below is -4.6%. Today, it surpassed both of these, which is concerning (see Figure 6 in the attached PDF for all periods below the 200-DMA since 1990). Still, there are significantly more periods below the 200-DMA which did not turn into bear markets, versus those that did.
  • Refreshing the FTD study from a few weeks back, if we do generate one next week, keys will be immediate progress and only moderate distribution. Should the first FTD below the 200-DMA fail, the second could be a very powerful one (1998, 2018), but if it fails, the likelihood of being in a bear market is very high.

Strategy View

Posted on by Randy Watts

Key Points:

 

  • Across large-, mid-, and small-cap S&P universes, with around two-thirds of companies having reported Q4 earnings:
    • Median sales growth of 4–5%, median beats of ~1%.
    • Median EPS growth of 10–11%, median beats of 3–7%. Better growth versus the prior couple of quarters, but “normal” beats.
    • Roughly half beat on both sales/EPS.
  • For 2025, expect:
    • Median 4–5% sales and 7–8% EPS growth.
    • Large-caps and mid-caps have seen slight net downward revisions to 2025 EPS, small-caps were unchanged.

Strategy View

Posted on by Randy Watts

Key Points:

 

  • Looking at stock market performance across presidential terms (1953–2025), the median S&P 500 return is +33% from inauguration to the end of the term.
    • Obama, Clinton, Eisenhower, and Trump have the largest four-year gains, ranging from 70–85%.
    • Only two of 13 presidents posted negative returns, Richard Nixon and George W. Bush.
  • Going back further (1900–2025 on DJIA), and looking at annualized returns,
    • Calvin Coolidge (1923–1929) is far and away the leader, with a 25% annualized return over one and a half terms.
    • Several others including Clinton, Obama, Trump, and Reagan are bunched together from 11–15% annualized gains.
    • Hoover presided over the 1929 market crash and the beginning of the Great Depression and is worst with a -25% annualized return.

Strategy View

Posted on by Randy Watts

As the year comes to an end, we want to look ahead to some of the possible major investment themes for 2025. These themes are from the research work by William O’Neil + Co.’s experienced equity analysts. Some of the themes are new and others are continuations of trends we saw in 2024.

Strategy View

Posted on by Randy Watts

The November elections ushered in a new administration and a Republican sweep of the federal government with the party winning the White House, the House of Representatives, and the Senate. Investors, investment bankers, and private equity have viewed the change in Washington as heralding a possible improvement in both mergers and acquisitions activity as well as public equity issuance.

Strategy View

Posted on by Randy Watts

Artificial Intelligence (AI) is the next major technology wave. According to IDC, spending on AI will be in excess of $631 billion by 2028. With the ever-increasing interest and spending in AI, there are a rising number of ways to invest in the theme. This month’s Strategy View examines some of the ETFs, industry groups, and stocks that are likely to benefit from this massive global theme.

Strategy View

Posted on by Randy Watts

The U.S. Federal Reserve began its long-awaited interest rate easing cycle on Wednesday, September 18 with its first 50
basis points cut since 2008. Figure 1 shows the post-war history of Fed easing cycles. It demonstrates that starting with a
50-basis point cut is roughly the average cut from the Fed initially. The table below also highlights that interest rate cuts are
like potato chips, you almost never have just one. Indeed, the new Fed “dot plot” is for an ending Fed Funds rate of 3.4%
at the close of 2025.

Strategy View

Posted on by Randy Watts

Key Points:

 

  • This report provides several historical bear market examples and their depth/time, number of follow-through days, and a handful of stock leaders that emerged once the market bottomed.
  • The current 30%+ drop from highs to lows has only been rivaled in its velocity a couple of times, in 1929 and 1987.
  • If we have established lows on indices, this would be the shortest bear market ever, at just five weeks (1929: 10 weeks, 1987: eight weeks).
  • We see additional time and a retest of lows as much more likely given a now sharply slowing economy.
  • We have yet to have a follow-through day since February highs, and we note that in only one case (1987) did the market hold its lows after just one follow-through day. The 1929 market had two failed follow-through days before a successful third.
  • However, we will keep an open mind, and should we get a follow-through day soon, we will be looking for select RS leaders to buy.
    • These currently include AAPL, ADBE, AMED, AMZN, ATVI, BABA, BIO, CIEN, COUP, CWT, DOCU, DPZ, FIVN, GSX, JD, MRCY, MSFT, MTD, NEM, NFLX, NOW, NTES, PDD, VEEV, VIPS, VRTX, WDFC, ZM.