E Relative Opportunity With US Sectors

(data from JP Morgan Asset Management)

In this rising interest rate period, Financials, Energy, Industrials, Basic Materials, and Consumer Discretionary have tended to react positively to interest rates; while Health Care and Communications Services are minimally reactive to interest rates. 

Technology reacts slightly negatively to rising interest rates, and Consumer Staples, Utilities and Real Estate react meaningfully negatively to rising interest rates.

3-5 Year PEG Ratio vs 3-5 Year Earnings Growth Rate Forecast

(data from Standard & Poor’s & FTSE NAREIT)

PEG ratios are the P/E ratio divided by the Earnings Growth Rate Forecast. In the case of Real Estate, we used the current REIT Price-to-Funds from Operations as a substitute for the P/E ratio, and used the S&P Operating Earnings Growth Rate Forecast. Funds-From-Operations are from FTSE NAREIT.

PEG Ratios below 1 are considered inexpensive, and over 2 are considered expensive.

PEG Ratios less than that of the S&P 500 are potentially more attractive because you pay less for growth.PEG ratios above that of the S&P 500 mean you pay more for growth than the index.

Lower PEG Ratios but with growth lower than the S&P 500 (yellow shading) provide growth at a lower price than the S&P 500, but the growth is still lower, and the price increase probability may be expected to be less than if the earnings growth is greater than that of the S&P 500 (green shading).

If the expected growth rate of earnings is lower than the S&P 500 and the PEG ratio is higher than the S&P 500 index (red shading), then the return opportunity is expected to be lower than the index.

Sector Short-Term Momentum- Price Return Only

(data from QVM calculations as of 2018-10-04)

Based on our tactical momentum rotation filter criteria only Information Technology (XLK for large-cap and VGT for all-cap) are attractive.

VGT is eligible for purchase (green) and XLK is eligible for retention (yellow)based on the rules provided below.

The filter we use to select ETFs for tactical momentum rotation requires at least these things:

  • Upward sloping 1-year regression trend line
  • 200-day average higher than 1 month ago and price above 200-day average
  • Price return 10% or more in excess of both T-Bills total return and S&P 500 total return over 12 months ending 1 month ago
  • Maximum drawdown over the last 3 months not more than 10%
  • 3-month average Dollar trading volume per minute at least $15,000
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Disclaimer: "QVM Invest”, “QVM Research” are service marks of QVM Group LLC. QVM Group LLC is a registered investment advisor.

Important Note: This report is for ...

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