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It’s been another big month for the stock market. This stock market’s positive feedback loops were on full display in Consumer and Finance stocks.

Stock Prices Slightly Above Fair Value

At 15.4 times this year’s conservative earning estimate, stocks look fairly valued.

Consider the average stock market P/E is 15. Apply that to $113 per share optimists expect for the S&P 500 in 2013. That computes to fair value at 1695!  If you say those earnings projections are high (we would agree), trim to a conservative $105 per share. That gives S&P 500 fair value of 1575.
 
Q1 Earnings Reports Shrugged Off

Now, markets looks forward at inflated second half earnings estimates.  

On Tuesday, April 30th, 316 S&P 500 companies had reported Q1 results. Total earnings for these 316 companies were up +2.6%, with 67% of companies beating earnings expectations. Revenues are down -2.1%, with only 36% of companies coming ahead of top-line expectations. The median surprise is a respectable +3.2% for earnings and a negative -0.4% for revenues.

For Q4-12, S&P 500 companies reported earnings and revenues up +2.2% and +1.5% y/y, respectively.

Using the Sector-Industry-Company Telescope

Here we list salient May macro themes and some investing tips…

(A) The rise in Q1 U.S. jobs numbers and upward 2013 jobs revisions helped the stock market hit fresh multi-year highs.  In a positive feedback loop, the personal and home sides of Consumer Discretionary are highest ranked:  Apparel, Media, & Home Furnishing-Appliance ranked at the top of the pack.

Retail in the Consumer Sectors is now at Market Perform: Both Food and non-Food Retail/Wholesale are here.

At below market were Autos-Tires-Trucks, and Tobacco. The Consumer industries that showed us the weakest Zacks Ranks had business model issues: Food, Publishing, and Consumer Electronics-Retail.

Company: Brunswick Corp. (BC - Snapshot Report)

(B) High Zacks Ranked industries from building U.S. momentum in the Finance Sector focused on the stock market. Investment funds, Investment Banking & Brokering, Real Estate, and Insurance industries showed up even stronger in early May versus early April.  

Company: Alliance Bernstein (AB - Snapshot Report)

(C) In marked contrast to Materials and Energy, there is noted building of strength inside the Industrials sector on a stronger domestic outlook.   Construction-Building Services, Transportation, and Metal Fabricating industries are very attractive.  

Machinery, Business Products, and Pollution Control struggle the most.

Company: Greenbrier Companies (GBX - Snapshot Report)

(D) IT looks strong, but with diverging drivers.  Semiconductors and Misc-Tech became the most attractive industries here, with growth in smart phone Asia-Pacific. Computer Software & Services ranked as a market weight industry.  Telco Hardware, Computer Office, and Electronics fell back to become underweight Zacks Ranked IT Industries.

Company:  Sandisk (SNDK - Analyst Report)

(E) The Utilities Sector, interestingly, got a further upgrade into early May.
 
Company:  Endesa - Chile (EOC - Snapshot Report)

(F) Marked weakness in the international outlook pushed down the Materials sector. Weakness was apparent in very low Zacks Industry Ranks for Steel and Metals-Non-ferrous.  Chemicals and Paper were weaker too.
 
(G) Weaker gasoline at the pump prices played out within the Energy Sector.  We saw Oil E&P, Drilling and Oil-Misc. with its Refiners do best in the Zacks Ranks. They were market weight.  There was a Zacks Rank drop in Integrated Oil Companies and Pipelines to market underweights.

Alternative Energy and Coal industries remain victims of low natural gas prices.

To read the entire piece on May's Market Strategy, click here.

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