Greater Breadth Will Pull Stocks Out of Sideways Pattern, Stovall Says

Remember when the tech titans—Facebook, Apple, Netflix, Microsoft, Amazon, and Google parent Alphabet (FANMAG)—were the engine pulling the market’s train? Well, in recent months, those big boys’ share prices have mostly leveled off, and other players have come to the fore.

And that, according to Sam Stovall, CFRA’s chief investment strategist, should lift stocks out of their current “sideways pattern.” Since mid-April, the S&P 500 has risen just 2%. From the beginning of 2021 to mid-April, it climbed a much more robust 13%.

The S&P 500 did manage to notch another record Monday, yet it did so by inching up a mere 0.18%.

What will drive this next big leg up? The fact that the market these days is showing a good deal of what market technicians call breadth. As Stovall put the matter in his latest report, “Just as a 20-horse carriage will likely travel further and faster than one pulled by only two horses, so too do stock markets have the potential to rise longer and higher when driven by multiple sectors and sub-industries, rather than just a few.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

As of last Friday, 97% of the 147 sub-industries in the S&P 1500—the storied Standard & Poor’s large-cap benchmark index, plus its small-cap and mid-cap siblings—were trading above their 200-day moving average. That is an impressive figure. The weekly average over the past quarter-century has been 63%.

The greater breadth is a big reason that Lowry Research, a CFRA subsidiary, believes a strong upward movement is coming, Stovall explained. In his view, there are “subtle, but definitively positive, developments in recent weeks that reflect strengthening market conditions.” Investors who have been on the sidelines should think about getting in on the party before it starts, he advised.

The leaders lately, he noted, are energy, financial, and real estate stocks, which all were stragglers during last year’s heyday of the FANMAG crew. By Yardeni Research’s count, energy this year is up 43.9%, financials 25.6%, and real estate 25%. As for info tech, it has gained just 9.5%. Hardly a rout, but nothing like its 2020 blow-out. Lat year, for instance, Apple soared 70%. This year, it’s flat.

To be sure, not everyone is as sanguine. Jamie Dimon, chief of JPMorgan Chase, on Monday forecast a big drop in the finance industry’s stock trading revenue, as the economy comes back to normal and the recent speculation ebbs.

There’s a Rolling Correction Happening in Stocks, Says Morgan Stanley’s Wilson

Will High Inflation Do a Number on Stocks? You Bet, Says Goldman

Tags: Apple, breadth, CFRA, energy, FANMAG, financial, Real Estate, S&P 1500, S&P 500, Sam Stovall, Stocks, tech stocks

Maine has become the first state to pass legislation that bans public investments in fossil fuels. The bill requires the $17 billion Maine Public Employee Retirement System (PERS) to divest $1.3 billion from fossil fuels within five years, and orders the state Treasury to do the same with all state funds.

“Fossil fuels have fanned the flames of the climate crisis, and investing in them is bad for both our retirees and our environment,” State Rep. Margaret O’Neil, a Democrat and the bill’s sponsor, wrote in the Portland Press Herald. “Continuing to invest state retirement funds in companies that produce fossil fuels runs counter to the ambitious environmental goals Maine has set for itself.”

Under the new law, the state treasurer and the Maine PERS board of trustees are not allowed to invest the assets of any state pension or annuity fund in any stocks or other securities of any fossil fuel industry company. This includes any subsidiary, affiliate, or parent of any companies that are among the 200 largest publicly traded fossil fuel companies, as set by carbon in the companies’ oil, gas, and coal reserves. Though Maine is the first state to pass this type of legislation, other states, including New York, have considered similar moves with their pension funds.

Maine PERS currently has more than $1.3 billion invested in fossil fuel companies, such as ExxonMobil, Chevron, and ConocoPhillips, including $850 million invested through private equity investment funds, according to environmental organization Stand.earth.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The bill also requires the treasurer and Maine PERS board to divest any stocks or other securities, whether they are owned directly or held through separate accounts or any commingled funds, by Jan. 1, 2026. However, it also stipulates that this must be done “in accordance with sound investment criteria and consistent with the board’s fiduciary obligations.” Exempt from the restrictions are short-term investment funds that commingle commercial paper or futures.

Additionally, the state treasurer and the Maine PERS board will have to report on the divestment’s progress to the joint standing committee of the legislature that has jurisdiction over appropriations and financial affairs by the first of January in 2023, 2024, and 2025. They are also required to make a final report to the committee by Jan. 1, 2026.

“Curbing climate change requires, in part, intentional government action, crafted with fiduciary obligations in mind,” Maine Treasurer Henry Beck wrote in a statement of support for the bill. Beck noted that the state’s trust funds’ equities are only 3% invested in the energy sector, adding that “this low exposure illustrates another point: that there has been a recent move away from energy, especially in fossil fuels by certain public funds.”