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The Panic Has Been Postponed

Kevin Cook here for Reity...

Just when headline-driven investors were ready to throw their portfolios out the window as the Trump Rally careened off the road into the infrastructure ditch, the panic subsided and growth-hungry investors came looking for their favorite stocks in the wreckage.

Now, we could still get that 5-6% correction below S&P 2300, where the 200-day is lining up with a "bench" of support above 2250. And I still think it will be a mini-panic to buy. Until then, let's keep things in perspective.

Economy humming? Check. Earnings growth? Check. Policy grid-lock? Good enough. Now we just have to check valuation and relative strength.

The S&P index is trading near 18 times forward EPS estimates for this year. Inside the index, Consumer Staples and Discretionary are 19-20X (yikes!) while Finance and Healthcare remain attractive at 13.5X and 15.7X. Energy remains expensive at over 25X while Industrials and Materials are no bargains either at 17.7X each. The Growth Sector (I mean Tech) is trading 18.4X.

Where Will the Money Rotate?

For some perspective on where we've come from since the election, Finance is only up 4% in the past six months and 24% in the past year. The bulk of that return came in the week after Trump's victory. Without Dodd-Frank regulation reform, banks will give back more of that gain, but not all.

And I would expect the money to flow to Healthcare and Tech primarily because that's where the earnings growth is. Industrials and Staples are no slouches for growth either, but they are well fully-valued for their growth.

Bottom line: Yes, it's one of those times where Cooker say "Prepare your buy lists and BTD (buy the dips)!" I suggest starting with Zacks Premium Screens where you can choose from dozens of predefined screens strategically created to beat the market. Select the ones that match your personal trading style and even modify them with dozens more custom parameters.

And Happy BTD!


Kevin Cook

Senior Stock Strategist, Zacks Investment Research


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