Sometimes things go according to plan. Last week we talked about the indexes making moves that suggested the September slump for stocks could be coming to an end. We were cautiously optimistic following last Monday’s gap up but knew the indexes could retreat as they do many times following a gap up.
A lot has happened in the last week. We had the Presidential shouting match and President Trump caught the COVID. Stocks reacted negatively to both. As of Sunday night, word emerged that Mr. Trump was feeling better and could be discharged from Walter Reed as early as today. With about an hour or so of trading left, he tweeted that he’ll return to the White House at 6:30 P.M. on Monday.
Stocks rose on the news of the President’s improving health and strong economic news. The ISM Manufacturing report came in at 55.4, a little lower than expectations of 56.3, but still above the all important 50. Anything above 50 indicates the economy is growing.
Investors should pay attention to the ISM Manufacturing and Services reports. In my opinion, they are two of most important and easiest to interpret. It can’t get any easier than a reading above/below 50, right?
Gains to start the week confirmed the September slump is over and confirmed the continuation of the post-Covid low uptrend. The S&P 500 busted past last week’s high, upward momentum is building, and we got a bullish MACD buy signal. The S&P 500 rose sharply the last time the MACD went bullish after a notable decline. It would not be surprising to see the market challenge its 52-week highs, if we’ve made the correct call.
If the uptrend continues as we expect, index investors might think about adding SPDR S&P 500 ETF Trust (SPY) to their portfolios.
Investors appear to be betting on Joe Biden winning the election after the debate as First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) rose more than 6.5% in the last week. Those betting on Biden’s Green New Deal could be right, but QCLN looks overextended in our view.
The other top performers were all interest rate sensitive, from banks to insurance to real estate. Unfortunately, none of their charts are inspiring in our view.
Since we weren’t enamored with any of the top performing sectors, we decided to look at the stocks in the top performing index, the DOW. Coincidentally enough, American Express Company (AXP) is the company within the DOW that we feel offers the best combination of fundamentals and the potential for immediate upside.
The Financial Services company’s shares haven’t fully recovered from their pre-COVID 19 prices. AXP shares have another $35 to make up to return to their early March heights. At the same time, the company is forecasted to grow sales by nearly 13% in the next two-years, one of the fastest in the DOW. The credit card company offers investors a 24% return on equity (ROE) and trades at 2.03 times sales, one of the lower valuations in the DOW.