Market Signals Strength Long-Term: Weekly Nifty 9

The sentiment indicators remain strong despite a November moderation with renewed coronavirus cases, as output rises in the face of plunging inventories and rising sales.

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Research Report Excerpts #7

“The first quarter of the 1st year of a Presidency tends to be challenging.”

Keeping in mind that the data is the data and we can’t argue with the facts; we can look more deeply into the data to find the alpha, the potential outperformance. The RenMac data goes all the way back to 1928, which in my opinion proves less useful than a study dating back to the post-WWII period. Going back to that time period, indeed, the Q1 following an election year does deliver a negative return on average. But here is what I also found:

  • Number of negative Q1 returns going back to 1976 is 3, after election year.
  • Outside of 2009 (GFC), and 2001 (dotcom) only 1977 Q1 was negative.
  • Q1 positive after election year on average even when including 2009/2001.

Research Report Excerpts #8

If we fast-forward to the latest FY2020 and FY2021 consensus analysts’ estimate we can see that there has been a dramatic rise, even out into 2022:

The market’s relentless rally since the election week has forecasted the likelihood of better than anticipated earnings. As I’ve offered in the past, the market is not usually found in error shy of Fed missteps and/or an exogenous event i.e. the tightening cycle of 2018 and COVID-19 in 2020. Furthermore, don’t be surprised if Q4 2020 earnings season culminates with FY2020 EPS coming in at the $140s per share level.

Research Report Excerpts #9

Now here is the view from the 30,000 foot level, so to speak. A sign of broad breadth: Large-caps, mid-caps and small-caps have staged upside breakouts to new highs.

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Breadth leads price and while we might be expecting some turbulence near-term, the long-term breadth strength suggests higher prices ahead in 2021. 

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