SET Portfolio Update May 2015

| May 5, 2015

portfolio update

Investors are greeting the arrival of the month of May as they so often do… They’re selling stocks.

The old Wall Street adage goes, sell in May and go away.

But here’s the thing…

I don’t think investors will go away.

In order for the ‘sell in May and go away’ strategy to work, it assumes investors can make money in bonds or risk free accounts. But that’s not the case right now.

Bond yields are low… so low that they’re even negative in parts of Europe.

Right now, we’re seeing some seasonal selling. But investors will be back quickly as they realize that they’re not making any money being out of stocks.

Simply put, there’s no better place for investors to be than stocks. So, investors will have a hard time staying away.

Seasonal selling isn’t the only thing weighing on investors at the moment.

US GDP growth unexpectedly stagnated in Q1.

GDP grew just 0.2% in Q1 after expanding 2.2% in Q4. This was well below expectations for a 1.0% increase. And to make matter worse, it was the weakest reading in a year.

The weakest parts of the economy were energy related.

The drop in oil prices triggered a massive slowdown in US oil and gas exploration and production, as well as a slowdown in new drilling. The impact of the drop in overall energy infrastructure investment due to the slowdown in energy hit home in the 1st quarter.

The expectation is that increased consumer spending will make up for the slowdown in energy investment. But consumers aren’t cooperating. They’re opting to save the money instead of spend it.

And who can blame them?

Prices have been creeping higher while wages have been stagnant for years. The drop in oil prices is simply giving US consumers a bit of relief after being overextended.

Needless to say, we’re dealing with some serious headwinds right now.

But one thing hasn’t changed. It’s the reason I’m still bullish on stocks… companies are still growing earnings.

Amazingly, 69% of the companies in the S&P 500 beat Q1 earnings estimates. And 46% beat sales estimates.

The bottom line is companies are still able to generate earnings growth even in a flat economy. And until we see a breakdown in earnings growth, stocks should continue moving higher.

Now, onto the updates…

. . . . Materials Select Sector SPDR $XLB – Buy

XLB is our latest recommendation. The retreating US Dollar and an uptick in emerging markets sparked a nice rally in XLB. Grab your shares below $51.50 if you haven’t already done so. The price target is $62.50.

. . . . PowerShares S&P SmallCap Consumer Discretionary Portfolio $PSCD – Buy

PSCD is our proxy for restaurants and should benefit from an uptick in consumer spending due to the drop in oil prices. However, weakness in the small-cap stocks has held this ETF in check lately. Grab your shares below $55.00 if you haven’t already done so. The price target is $66.50.

. . . . iShares Medical Devices ETF $IHI – Hold

IHI made a new high of $123.36. That was a 5.3% gain from where we recommended buying it. But the recent weakness in stocks has been focused on industries like medical devices that had been the best performers this year. This looks like a temporary blip due to profit taking. Grab your shares below $120.00 if you haven’t already done so. The price target is $140.00.

. . . . Guggenheim S&P Equal Weight Consumer Staples ETF $RHS – Hold

RHS continues to be a standout among consumer staples ETFs. It’s holding near its highs and outperforming others ETFs that track the sector by more than 2% so far this year. Continue holding… the price target is $122.00.

. . . . Market Vectors Gaming ETF $BJK – Buy

BJK continues to put in a bottom. As the industry stabilizes and looks to the future, BJK should outperform in the weeks and months ahead. Buy BJK below $41.00. The price target is $55.00.

. . . . Market Vectors Semiconductor ETF $SMH – Hold

SMH has hit some technical resistance at the psychologically important NASDAQ 5,000. Not surprisingly, we’ve seen technology shares consolidating their gains over the last few weeks. Continue holding SMH for more upside. The price target is $71.00.

. . . . First Trust NASDAQ-100 Technology Sector Index Fund $QTEC – Hold

QTEC is in a similar position to SMH… a bit of consolidation is to be expected as the NASDAQ reaches a new all-time high. But I expect to see buying pick up later this quarter as investors realize stocks still offer investors the best returns. Continue holding. $50.00 is our price target.

. . . . Global X Social Media Index ETF $SOCL – Buy

SOCL made a new high of $21.21 on April 27th. But SOCL was hit with a batch of weaker than expected earnings reports from Twitter $TWTR, Yelp $YELP, and LinkedIn $LNKD. Despite some disappointing earnings, I remain bullish on social media stocks looking out over the next few quarters. Buy SOCL up to $20.00.

. . . . Financial Select Sector SPDR $XLF – Hold

XLF has been locked in a consolidation pattern this year. Now the downward trending resistance and the upward trending support are coming together. That means the period of consolidation is coming to an end. I’m expecting XLF to make the next leg higher in short order. My price target for XLF is $29.00. Continue holding for bigger gains.

. . . . Guggenheim Solar $TAN – Hold

TAN has recently pulled back in a similar fashion to other top performing sectors. We’re currently up 40% on this holding. Continue holding for the next leg higher.

. . . . PowerShares Dynamic Leisure and Entertainment $PEJ – Hold

PEJ is currently trading for $37.08. Consumer stocks have been moving lower after consumer spending came in lower than expected in the first quarter. We’re currently up more than 18% on this holding. And I expect it to rally toward my $41.00 price target as investors re-enter the market in the next few weeks. Continue holding.

Action to Take

  • None at this time.

Category: SET Portfolio Updates

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