Mixed outlook for a US market rebound

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In our April 29th Insights newsletter, we described how investors had returned to the Bernanke-Obama-Yellen (BOY) playbook by piling into large-cap growth situations to take advantage of loose monetary policy during a period of lacklustre economic growth. This time around, however, monetary conditions are not as accommodating as rates are no longer at zero and QE is long finished. To get a sense on how long the BOY playbook may work we are monitoring the INK Edge rankings of the top 10 largest market leading stocks as of the end of April.

The longer the majority of this mega-cap group can keep their Mostly Sunny or Sunny rankings, the longer we would expect the market rally to continue based on momentum. In the middle of last week, 7 out of the 10 had Mostly Sunny or Sunny rankings.

Cisco Systems saw its outlook cloud over this week (click for larger)

Now, there are only five.

INK Edge Outlooks* of the 10 Top Heavy Lifters of the US Stock Market

1. Walt Disney (Sunny; DIS)
2. QUALCOMM (Sunny; QCOM)
3. Microsoft (Sunny; MSFT)
4. Facebook (Mostly Sunny; FB)
5. Amazon.com (Mostly Sunny; AMZN)
6. Cisco Systems (Mixed; CSCO)
7. Intel (Mixed; INTC)
8. Apple (Mixed; AAPL)
9. NVIDIA (Mixed; NVDA)
10. Mastercard (Cloudy; MA)

*As of May 8th.

Given that only half the list meets our criteria for a continued mega-cap momentum led rally, a resolution to the China-US trade war will likely become critical. Even should that occur, we will have to see if animal spirits return to help push away the clouds from hanging over our ten big hitters. On the other hand, should trade friction get out of hand, we could see the outlooks in the top 10 heavy hitter list deteriorate quicker than expected as the Fed would probably be unable to respond quickly enough to halt another correction.

INK Edge outlook ranking categories (Sunny, Mostly Sunny, Mixed, Cloudy, Rainy) are designed to identify groups of stocks that have the potential to out- or under-perform the market. However, any individual stock could surprise on the up or downside. As such, outlook categories are not meant to be stock-specific recommendations. For background on our INK Edge outlook, please watch our short video or visit our FAQ #5 at INKResearch.com.

This post is based on a report that first appeared on INKResearch.com.

 

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