Key points from the report:
S&P 500 earnings are decelerating, but the S&P’s P/E ratio has also fallen significantly given rising 10-year yields.
Given the Fed’s pause, if yields continue to come off highs, P/E ratios could see moderate expansion once again.
A 6%+ gain since the January 4 follow-through day on the S&P 500 is in line with the average of second follow-through days, which have worked to continue past bull markets.
The S&P 500’s 7%+ gain in January was only the fifth time since 1970 when a 7% monthly loss was followed by a 7% monthly gain.
The four (1974, 1987, 2002, 2009) other instances ended prior bear markets, and one (2011) ended a large market correction.
Forward gains once this precedent is established are well above average for the next six months. An S&P 500 gain of >5% in January (nine prior instances since 1970), similarly leads to a well above average next six-month period.
Technical setups are much improved, with all indices and sectors above 50-DMA. Tests of the 200-DMA are looming for sectors and a majority remain more than 10% off highs. Breadth is also better, and recent actionable Focus List additions include NOW, CREE, BA, NEWR, FISV, DXCM.
