20130731-富瑞金融香港公司-Global_Equity_Strategy_US__Crowded_Places_19页_813kb

Global Equity Strategy Summary

US Equity Market Overview

• Market Performance: US equity markets were modestly lower over the week after touching an intraday high. The Detroit bankruptcy filing had minimal impact on share prices, while Moody's upgraded the US credit rating outlook from negative to stable following S&P's June move.
• Interest Rates: The US dollar was weaker, and 10-year government bond yields were marginally higher, just over 2.5%, but still 100 basis points higher compared to early May.
• Volatility: The VIX index remained near its lows around 12, indicating low market volatility.
• Fed Watch: The FOMC meeting is scheduled for Tuesday and Wednesday, with the monetary policy statement expected on Wednesday. No changes are anticipated, and the Fed's best action is to leave the statement unchanged.
• Economic Data: Key data releases this week include the first estimate of Q2 GDP on Wednesday and the July employment report on Friday. The employment report is expected to show a 200k increase and a drop in the unemployment rate to 7.5%.

US Macro-Micro Themes

• Sustainable Equity Income: SAI US is highlighted as a key player.
• M&A/ LBO/ Activist Candidates: NOC US, RTN US, GD US, COH US are notable.
• Domestic US/ Small Cap: FAN US, GPOR US are mentioned.
• Consumer Discretionary/ Wealth Effects: DECK US, VRA US, ARO US are key.
• LNG Gas Export Beneficiaries: LXFR US, GLNG US, WOR US.
• Steep Yield Curve/ US Financials: WFC US.
• Improving Payrolls/ Office Stationary: USTR US, HD US.
• Paper and Packaging/ US Competitiveness: IP US, RKT US, OI US.
• US Capex/ Truck Manufacturers: NSC US, DAN US, RUS.
• US Capex/ Machinery and Equipment: IR US, PCAR US.
• East Coast Railways: CSX US, NSC US.
• Improving Velocity of Money: CBOE US.
• US Housing Beneficiaries: PIR US.
• Improving Lending Standards/ HVAC and Water Heater Makers: IR US, ITX US, AOS US.
• Keystone Pipeline: NOA US, PDS US, WFT US.

Earnings Performance

• Earnings Beat: From the beginning of July 2013, 67% of US companies (up from 64%) posted better-than-expected earnings, with an average magnitude of 6.0% (up from 1.9% previously).
• Sector Analysis:
  • Market: 52.4% breadth, 0.7% magnitude.
  • Large Cap: 54.9% breadth, 1.6% magnitude.
  • Mid Cap: 56.7% breadth, 0.6% magnitude.
  • Small Cap: 45.7% breadth, 0.2% magnitude.
• Consumer Discretionary: 46.3% breadth, -0.1% magnitude.
• Consumer Staples: 38.1% breadth, 0.4% magnitude.
• Energy: 59.2% breadth, 1.6% magnitude.
• Financials: 52.6% breadth, 1.7% magnitude.
• Health Care: 56.6% breadth, -0.3% magnitude.
• Industrials: 52.6% breadth, -1.1% magnitude.
• Information Technology: 59.1% breadth, 0.4% magnitude.
• Materials: 40.8% breadth, 0.3% magnitude.
• Telecommunication Services: 71.4% breadth, 3.0% magnitude.
• Utilities: 63.6% breadth, 3.6% magnitude.

Earnings Revisions

• Positive Earnings Revisions: Companies like ABM, ARW, ABG, BHE, BWS, CYD, DLX, FPO, PDM, and others have shown the highest average EPS revision ratios.
• Earnings Revision Strategy: The high EPS revision strategy has outperformed the low EPS revision strategy and the S&P 500 total return.

Quality Investing

• Quality Outperformance: Similar to Japan and the UK, quality stocks have outperformed in the US.
• Quality Strategy: Includes companies with high Piotroski F scores, high Altman Z scores, sustainable growth rates > 8%, dividend yields > 2%, and dividend cover > 2.
• Best Performing Sectors: Large cap quality stocks have offered the best returns.
• Notable Quality Companies:
  • Consumer Discretionary: HLF US, VCI US, GCI US, GA US, GES US, TUP US, MAT US.
  • Consumer Staples: CALM US, CPB US, GIS US, SWY US.
  • Energy: XOM US, HFC US, RES US.
  • Health Care: BAX US.
  • Industrials: AVY US, DLX US, EMR US, NOC US, RTN US.
  • Information Technology: AAPL US, ADI US, BR US, MSFT US, SAI US, STX US.
  • Materials: CMC US, KOP US, SMG US.

Momentum Investing

• Positive Momentum: Energy and software services have shown the best positive momentum.
• High Price Change Strategy: Companies like VIPS, IL, MCP, BPI, NOAH, GDP, NAT, TSL, QIHU, and others have experienced significant price increases.

Summary of Key Takeaways

• Bullish Outlook: The S&P 500 remains bullish with a year-end target of 1,735.
• Market Rotation: There has been active rotation with momentum strategies, particularly on the short side, showing strong performance.
• Earnings Trends: The number of companies reporting earnings has increased, with a notable improvement in the earnings beat, driven by smaller companies.
• Earnings Guidance: Sales guidance continues to deteriorate, with a net downward revision of 12 and 24-month forecasts.
• Dividend Trends: High cash flow yield and dividend cover have been important themes, with technology companies leading in cash flow yields.
• Quality Stocks: Quality has outperformed, with large cap quality offering the best returns.
• Sector Performance: Financials, information technology, industrials, and consumer discretionary sectors have stood out in earnings performance.
• Utilities: The utilities sector has shown weaker performance with a small sample size.

Strategic Insights

• Positive Momentum Investing: Selling underperforming shares from the previous quarter has yielded better returns.
• High Cash Flow Yield: This theme has produced outstanding returns, similar to Japan and the UK.
• Earnings Revision: Companies with upward earnings revisions are showing strong performance.
• Dividend Strategy: A focus on dividend yield and cover has been a key part of the investment strategy.
• Earnings Beat: The improvement in earnings beat is due to a greater number of smaller companies performing well.
• Market Breadth and Magnitude: Large cap companies have better breadth, while small cap companies have higher magnitude in earnings surprises.

Conclusion

The US equity market remains a key focus for global investors, with a mix of positive momentum, quality, and earnings revisions driving performance. Despite the modest decline in the week, the market is showing signs of strength with a bullish outlook for the S&P 500. The strategy continues to emphasize high cash flow yield, quality stocks, and sectors like financials, information technology, industrials, and consumer discretionary. Investors are advised to maintain a focus on these themes for potential gains.