Despite all this negativity, equities have continued grinding higher this year. Why? It is the fundamentals that matter for markets, not sentiment, and U.S. fundamental economic data have been strong, and are getting stronger.
How strong will the rally be? The tectonic sentiment shift from negative back to positive that is now starting, and the likely spread of economic strength from employment to incomes, make me think that it will be quite strong - our latest forecast for the S&P 500 six-month return is between 5% and 10%.
- I think that Value will underperform - we prefer broad market (SPY, IVV) to value (IVE, IWD). Avoid defensive sectors such as utilities (XLU).
- Growth should outperform the broad/balanced market - ETFs such as (IWF, IVW, VUG) should do well. Broad Tech sector (QQQ, XLK) likely do well (but I would avoid Social Media - that mini-bubble will not re-inflate).
- I think that small-cap (IWM, IJR, VB) selloff is over and they may bounce in short-term, but we don't see them outperforming over 3-6 months.