Last week we closed the books on May and tip-toed into the last month of the current quarter.With all the major market indices once again inching higher last week, 2Q 2017 to date returns now range between 2.6 and 3.2 percent for the Dow Jones Industrial Average and S&P 500, with the standout being the Nasdaq Composite Index at up 6.8 percent. The Nasdaq continues to be fueled by the model horsemen of the Connected Society and Asset-Lite Business investment themes: Amazon (AMZN), Facebook (FB), Apple (AAPL), Alphabet (GOOGL) and Microsoft (MSFT). With several of those stocks are now in overbought territory — yes we mean you Amazon, Microsoft and Alphabet — we have to question how much further the Nasdaq will climb in the near-term, especially as it too has entered overbought territory.The S&P 500 is on the cusp of overbought territory as well. When that’s happened in the recent past that index has either traded sideways for several weeks — as we saw over the December 9, 2016 – January 23, 2017 period — or it has soon peaked and traded off as evidenced by the move in late February and the first half of March. Now for the sobering thought . . . this continued move higher quarter to date in the S&P 500 has come even though EPS expectations for the current quarter have been trimmed as have those for all of 2017. During the first two months of the current quarter, analysts lowered earnings estimates for the S&P 500 group of companies 1.7 percent to $31.58 from $32.13 during this period. With some modest tinkering to expectations in the back half of 2017 – yes, lower as you might have guessed — the wind up was the S&P 500 traded at 18.5x expected 2017 earnings as we exited last week.Even after those revisions, consensus expectations still have the S&P delivering more than 10 percent earnings growth year over year.This makes team Tematica go “Hmm” especially given the pairing back of GDP forecasts for the current quarter by both the Atlanta Fed as well as the New York Fed. Tematica’s Chris Versace and Lenore Hawkins talked about the factors behind those moves on last week’s Cocktail Investing podcast, which if you missed it you can listen to it here.Following the taping of that podcast, we received the May data for both ISM Manufacturing as well as the Employment Report, neither of which pointed to an uptick in economic activity during the month. The result was the Atlanta Fed revised its 2Q 2017 GDP forecast down to 3.4 percent, from 3.7 percent a week prior. At the same time, the New York Fed kept its 2Q 217 GDP forecast intact at 2.2 percent, but trimmed its 3Q 2107 GDP forecast from 2.0 percent down to 1.8 percent.That 3Q 2017 GDP trimming is not only in keeping with the economic data we’ve been seeing of late, but also the likely reality that President Trump’s economic agenda will more or less stall during the summer months with Congress out of session more than it is in session. We’ve written on this previously and discussed it several times on the weekly podcast, but for those that may have missed it, we increasingly expect to see Trump’s economic agenda and reforms getting pushed back to late 2017 at the earliest and maybe even into 2018, due to the pending 2017 election season and Trump’s dwindling popularity. That combination will more than likely embolden Democrats seeking re-election to push back on or at least endeavor to forestall any and all of Trump’s maneuverings.
Stifel Technology Conference NAREIT REITWeek Investor Forum 2017 Stephens Spring Investor Conference 2017 Jefferies Global Healthcare Conference 2017 Baird Global Consumer, Technology & Services Conference Bank of America Merrill Lynch Global Technology Conference 2017 Wells Fargo Securities Financial Services Investors Forum 2017 Deutsche Bank dbAccess Global Industrials and Materials Summit Citi Global Markets, Small & Mid Cap Conference 2017Several paragraphs above we mentioned investors pulled $1.6 billion out of US equity ETFs during May, and given the above short list of conferences the ETFs to watch this week will include: Technology Select Sector SPDR Fund (XLK) Vanguard Information Technology ETF (VGT) Financial Select Sector SPDR Fund (XLF) Vanguard Financials ETF (VFH) Health Care Select Sector SPDR Fund (XLV) iShares US Healthcare ETF (IYH) Industrial Select Sector SPDR Fund (XLI) First Trust Industrials/Producer Durables AlphaDEX Fund (FXR) Consumer Discretionary Select Sector SPDR Fund (XLY) Vanguard Small-Cap Value ETF (VBR)While we are focused on those companies that are benefitting from multi-year thematic tailwinds, we’ll continue to monitor ETF fund flows as a barometer of investor appetite as we construct our own set of thematically focused indices.