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: U.S. Market Rally Update

Posted on by Randy Watts

Attached is a note by Randy Watts, Executive Vice President and Chief Investment Strategist, and Kenley Scott, Global Sector Strategist, at William O’Neil + Co. on the current state of the market.

 

Key Points:

 

  • The DJIA is well beyond the average 14% rally leg in a bull market, up 19% since mid-April with no 5% correction.
    • Since 1900, it has had 86 prior rally legs of at least 19%, or in 21% of all rallies.
    • Since 1970, it has had 35 above 19%, a 16% clip. (see note for list of all 35)

Strategy View

Posted on by Randy Watts

Attached is a note by Randy Watts, EVP and Chief Investment Strategist, and Kenley Scott, Global Sector Strategist at William O’Neil + Co. on Q2 earnings.

 

Key points:

 

  • S&P 500 companies are expected to post a median of about 4% sales and 3% EPS growth for the Q2 2025 quarter.
  • Sales estimates have held steady over the past three months, but earnings estimates have been nearly cut in half. It is typical to see EPS estimates come down into the quarter, although not necessarily by this much. It should be a low bar to beat (normal beats is between 3–5%).
  • Full-year 225 estimates have come down only slightly implying some growth being pushed into the second half.
  • Technology has easily the best Q2 estimates followed by Health Care, Financial, and Utility. Technology is also the only sector with upward revisions to sales and EPS over three months.
  • Material, Cyclical, Staple, and Energy have the weakest estimates and have also seen some of the sharpest recent downgrades.
  • The market has started to broaden and favor more cyclical industries recently. It will be interesting to see if price action or estimates/results in these areas are correct.
  • See the attachment for 4 categories of stocks that will be key to watch. 1) Long-term leaders (high beta, high growth, big Q1 beats) which are well into 52-week highs. Many are currently extended and trim candidates. Ex: SPOT, SEZL, HOOD, CLS.
  • Prior leaders which have lagged sharply from April lows. Generally strong companies but lower beta. Could be revisited should the market correct. Ex: COST, WMT, PLMR.
  • New leaders which have surged post stronger than expected Q1 results. Many are coming out of first stage bases. Ex: CX, HGV, CBRL, AEIS.
  • Long term laggards which have rallied into significant overhead and still expect weak growth. Ex: CC, FSLR, ALB, MRNA, PI. These are strong candidates to sell into the strength.

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.