U.S. Largecap Sector Relative Fair Values: Thursday, June 9, 2016

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Significant Changes Since Last Week:

We have returned to a score of 5 sectors reaching 100% FV or above this week as the DOW passed over 18,000 one more time. Even with the disappointing news from the labor side of the economy the market could see beyond the short term number and into the fact that we have added positions in the job market consistently for over 8 years. The current labor number does not sync with information that comes directly from employers that are reporting large increases, year-over-year, in revenue. We think we may be the point at which the previous month data does not reflect the current labor market. We think it might very well be much better than the numbers indicate. We will see.

The new sector to join the over 100 club is Materials. This sector has been here before and only recently fell from grace when the market decided to return to under 18,000 levels. If the market can continue along the near 18,000 mark we expect to see Materials remain above 100% FV.

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The Largecap market advanced 0.8 FV percentage points this week getting closer to 100% FV. Both the Midcap and Smallcap sections of the market advanced with the smaller capitalization stocks gaining the most at 2.3 FV percentage points to 102.7% FV. Midcap stocks remain ahead at 106.3% FV gaining 1.5 percentage points this week.

Within the Midcap sectors Consumer Staples crossed the line from just under 100% FV to 100.3% FV leaving only 2 sectors under the 100% FV mark. They are Energy at 95.1% FV and Telecom at 93.5% FV. Both advanced this week and may well move over the 100% FV mark this Summer.

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Energy and Materials were the big gainers this week. Energy advanced the most at 5.2 percentage points which is significant for a one-week advance. With oil above $50/bbl many of the “marginal” energy related companies are getting close to becoming “unmarginal” again.

In the Smallcap sector breakout no new sectors moved above the 100% FV mark but they all moved closer. Big advancements took place in Energy at 5.7 percentage points and Industrials at 5.2 percentage points. The real laggard in the group is Telecom back at 77.5% FV which is much different than what is occurring in both the Largecap and Midcap market categories. The culprit is Iridium (IRDM). You might remember this company many years ago as one of the largest IPO’s in history with the planned circling of the world of low orbiting satellites that would create a sat-net for mobile phones. Unfortunately for Motorola and Iridium, cellular technological advances had another idea.

U.S. Allcap Industry Relative Fair Values

There are now 10 industry groups at or above 100% FV with the most recent addition being Health Care Equipment & Services. This industry group moved past the 100% FV mark by 1.9 percentage points reaching 101.9% FV. Food & Beverage remains at the head of the list at 108.3% FV followed closely by Real Estate at 108.0% FV.

Technology Hardware & Equipment is the farthest away from FV on the under 100% FV mark at 91.1% accompanied by Transportation at 91.7%. Both of these industry groups were well behind all of the others last week as well. Transportation is having difficulty with lower revenues associated with lower transportation requirements coming out of the energy industry. This should increase later in the year as energy prices continue to climb.

We worry sometimes about the technology group as we wait for the next best advancement that will improve productivity. There are many advances in biotechnology and cloud services but, most of the advances are targeting corporate activities. Advances in personal productivity seem to have taken a rest. What happened to all of the monthly advances in cell phones, faster laptops, bigger memory? The reasons to buy a new $700 cell phone or $2,000 laptop have disappeared. We hope not for long.

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Not an Investment Recommendation – Use Only for Consideration