Bull Markets' Tumultuous Third Year | Sam Stovall on Earnings Expectations, Sector Outlooks, and bull Case for U.S. Stocks
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this door. Very pleased today to be speaking to Sam Stovall, Chief Investment Strategist at CFRA Research. Sam, welcome to Monetary Matters. Happy to be here, Jack.

Sam, how are you thinking about this market right now? We've had quite a volatile year, very choppy. Why has this year been so choppy?

Well, it's been choppy and history actually warned us that it was likely to be choppy for a variety of reasons. First off, we are in the third year of a bull market. And when it comes to child rearing, everybody worries about the terrible twos. But when it comes to the stock market, they really have to acknowledge the tumultuous threes.

I say that because there have been 11 bull markets since World War II that celebrated their second birthday. And 12 months later, these 11 bull markets were up only 2.2%.

If you take out the three that failed to celebrate their third birthday, the average was only 5.2% because two additional years posted declines and then three more years posted advances of 6.6% or less.

So really, it's been a challenging year. But we find that once you get to the fourth year of a bull market, it's like hitting 65. You have a great chance of making it to 75, 85. Once you get into year four, then double digit gains kick in once again.

Also, I like to say that wishing is more profitable than having. The Fed typically in the 12-month period from the last rate hike to the first rate cut has seen an advance of nearly 18% for the S&P 500. Yet in the 12 months after the first rate cut, the S&P gained only 4% with more declines in the after period than in the prior period.

We started this year with fairly high valuations. The S&P is currently trading at two standard deviations above the mean over the last 20 years and more than one standard deviation above over the last 10 year periods.

Thinking about the Kansas City Chiefs, they were hoping for a three-peat in the Super Bowl this year. But market historians would tell you that that is a very challenging feat to accomplish. In fact, only one in five times have we had a down year followed by two years of double-digit gains that then tacked on a third year.

And typically in that third year, we've gained only about 5%. So what happened was we ended up falling into a near correction because of worries over tariffs, global trade, and the possibility of throwing us into a recession. And what's your outlook right now, Sam?

My outlook now is I'm still a bull, but with a lowercase b. Valuations are elevated. And while investors were worried on a price basis and gravitated toward the more defensive areas of consumer staples, health care and utilities during the decline, which is something they typically do during sell-offs in the market, is focus on the safe havens.

One thing that has not changed just yet is the earnings projection. Right now, the S&P is projected to post a 6.9% rise for all of 2025. And that compares with a 9% forecast as of March 31st of this year and a 12.8% estimate as of the 1231 of 24. So we started the year thinking we would get almost 13%.

That got whittled down to 9% and is now less than 7%. And as we head into Q2, the earnings forecast is only 2.3%, also down from high single digits as of the beginning of the year. Prices tend to lead fundamentals. And if that is the case, then I think we're going to have to start to see some generous outlooks, generous guides offered for future profits.

and probably an easing of the trade and tariff fights that are going on around the globe.

So earnings estimates, I know with the very brief but violent sell-off in late March and early April, the stock market essentially crashed, but earnings estimates didn't budge. Perhaps as a veteran of Wall Street, you can comment on that, about the lagging nature of earnings estimates. And maybe it's people's jobs to kind of hug the benchmark and how that

behavior itself shapes stock market outlooks. But then you catch us up on that because I know that. So have we had the reverse from the lows in April until now where the stock market has actually been rising, but the earnings estimates have been falling? Is that correct?

That is correct. That as we, as I said, entered at least the beginning of the second quarter, earnings estimates had dropped to 9% for the full year. And at the same time, looking at estimates that were fairly weak for the second quarter, estimates had been as high as 9.2%.

As of 1231 for the second quarter, 6.8 as of March 31st. Now it's at 2.3%. I could say that there's actually a silver lining to this cloud in that I like to say that rarely does anybody injure themselves falling out of a basement window.

With the estimate being so low at 2.3%, I think that management is going to prove once again how adept they are at managing expectations. Incidentally, in 62 of the last 64 quarters,

actual results have exceeded end of quarter estimates. So I have a feeling that this will become the 63rd of the last 65 in which to do so. One reason being that at the beginning of the year, only one sector, energy, was expected to post year-on-year declines.

As of March, we added materials and real estate posting year-on-year declines. Now we're looking at seven of these sectors, consumer discretionary, staples, energy, financials, industrials, materials, and real estate posting year-on-year declines for the second quarter with really only tech being the outside gainer at 17% versus 2.3% for the market.

Tell us your sector outlook right now. Right now, my sector outlook is sticking with the winners. I have found that following down years, you're better off buying last year's losers than last year's winners. And then following up years, you're actually better off letting your winners ride or sticking with those winners.

What I've also found is that following declines of 10% or more since World War II, meaning entering into a correction, and we've had 25 of them since World War II, or entering into bear markets, and we've had 14 of those since World War II, that when the market does eventually bottom, you are actually better off rotating from first

to worst, meaning move out of the sectors and sub-industries that were the best performers during the market decline and into the three worst performing sectors and 10 worst performing sub-industries during that decline.

Over that 12-month period, looking back to all observations since 1990, which is as far back as S&P has sector-level data, the three best-performing sectors during the market decline were up 24% a year later versus 34% for the market. And those three best-performing sectors beat the market only one in five times.

Yet the three worst performing sectors, and they happen to be communication services, consumer discretionary, and technology, on average were up 43% to the market's 34%, and the worst 10 were up 61% versus the market's 34%. And in order to name names,

The three best performers during the market decline were, not surprisingly, consumer staples, healthcare, and utilities. I like to say that when the going gets tough, the tough go eating, smoking, and drinking. And if they overdo it, they have to go to the doctor. But the three worst performers, as I mentioned, were comm services, consumer discretionary, and tech. They, as a group, are up 26% since April 8th versus 20% for the market.

And the worst 10 performing sub-industries were up 30% versus the market's 20%. And some of the names in the 10 worst performing sub-industries were independent power producers, semiconductors, automobile manufacturers, casinos and gaming, as well as diversified financial services.

You're talking, your frame of reference now, your point of reference is the April mini crash, not the 2022 bear market. So you're talking about the best performers out of the bottom in April.

Absolutely. Thanks for the clarification on that. Yes. So essentially, where are we right now? Since we did experience a near 20% decline, and of course, even though today we are less than 1% below the February 19th all-time high, there is still a possibility that the market could turn around and set an even lower low. Low

Looking at 14 bear markets since World War II, 11 of them, anytime you got to within 2% of the all-time high, 11 of the 14 succeeded in recapturing the all-time high.

But 1948, 1957, and 2000, we did have experiences in which we got within 2% of a new high only to turn around and set an even lower low. But because of our fundamental forecasts,

because of our technical analysis arm called Lowry Research and looking at their proprietary indicators. On the early part of April, we had the feeling that the worst was behind us and that because of

You know, the percentage of groups that were below their 50 and 200 day moving averages that indicated to us that investors had thrown the baby out with the bathwater. And because of 90 percent subsequent up days, we felt that the worst was behind us. And we still feel that the market is aiming for new advances ahead.

And Sam, what are the industries or actually sub-industries that are experiencing the most rapid growth? Because I think that it's important to know where the growth is because people can talk about the small cap stocks, the Russell 2000. I think the earnings growth in that small cap space as an index has not been very good. And so people say, you got to own the Russell, you stop with this Magnificent Seven nonsense. But

A lot of the earnings growth, is it not, has been in the Magnificent Seven, has been in the semiconductor industry and the technology sector. Just give us the data and your commentary on that, please. Absolutely. The S&P mid-cap 400 and small cap 600 indices have underperformed the S&P 500 in eight of the last 10 years. And if memory serves correctly, in 12 of the last 15 years.

As a result, mid and small cap stocks look attractive longer term, but it's almost like they're spinning their wheels in the mud because their relative P.E. ratios on forward 12 month earnings as of this point are in double digits at or above the 20 percent discount threshold.

So they look attractive. And I would focus more on the S&P small cap indices because these companies have to prove to be profitable relative to the Russell 2000. But you're absolutely right when you're looking at second quarter earnings coming up. Technology is expected to post the highest return, 17% earnings growth on a year over year basis versus 2.3 for the market.

Communication services up 10.4%. And then here, surprisingly, utilities up 7.6% and healthcare up 4.3%, with the worst performing sectors on an earnings basis being materials, consumer discretionary, and energy, posting declines of anywhere from 6% to 27% year-on-year for energy.

And things don't look that much better for mid, small and value groups. And so talk to us about sectors versus subsectors. And Sam, I know that you don't love talking about individual securities, but is it kind of necessary? Because I'm looking at the technology sector, S&P sector, 14% of it is Microsoft sector.

14% of it is Nvidia. Those companies, particularly Nvidia, have experienced dramatic earnings growth. The third one is Apple, which has not really been growing its earnings. The fourth one is Broadcom, also earnings growth. And whereas I'm looking at consumer discretionary, you got 22% is Amazon. They've got some earnings growth. Tesla, earnings have been shrinking. They actually had a few quarters, if I correct me if I'm wrong, where actually revenues year over year shrunk. And so communication services,

I never really understand what that means. I mean, meta could be in technologies. Alphabet, Google, could be in technologies. I mean, Netflix, its communication sector, is that even a real thing? Maybe it made sense in the 1990s. But these categories, they don't really make sense to me. Do they make sense to you? And do you find that subsectors is a better way of looking at it, like semiconductors or hyperscalers and the like?

I think the sectors do have their merit because there are ETFs out there for each of the 11 sectors within the S&P 500. And the reason that there are these groups is because Standard & Poor's and MSCI have agreed to standardize the global industry classification. They call it

GIX, Global Industry Classification Standard. And so around the globe, at least these two companies, which are the two largest in terms of index providers, have aligned their sectors into the 11 sectors into 125 sub-industries within the S&P 500 and 155 sub-industries within the S&P mid and small cap 600. So I find it to be very helpful

You're absolutely right, though, that telecom was a sector when the baby bells split up. Prior to that, when it was really just AT&T, it was part of the utilities sector. Utilities had telecom companies in it. Then when the baby bells came out, then you ended up with a telecom services group that

But materials today in terms of size, about 2% in terms of energy being sub 5%. There are a lot of groups that are below 5% in terms of market weighting within the S&P. A lot of people are wondering what's going to happen to these groups going forward. So when the baby bells started consolidating once again, the question was, well, what do we do here?

And then the decision was made to broaden it to communications. So it would also include, in a sense, TV, radio companies like Disney, like Comcast, but also Meta because it's a different form of communication. So, I mean, you're absolutely right. Amazon, is that a

technology company or is that a consumer discretionary company it's found in consumer discretionary one could also say well why is walmart in consumer staples rather than consumer discretionary answer is because more than 50 of their revenues come from food there's no perfect way if you will of aligning all of the groups and so maybe you could dive down into the sub industries

Certainly by doing that, there are more than 20, 25 sub industry oriented ETFs out there so you can fine tune your investment rotations. So at the same time, you increase your risk whenever you narrow your diversification efforts. And what's your analysis of the various sub sectors? What are the best performing in terms of earnings growth?

In terms of earnings growth, good timing because I'm preparing an article right now on what is the outlook for the Q2 earnings.

And year on year, we have healthcare REITs up 400% basically because they started close to zero and are recovering strongly. So a company such as Alexandria Real Estate Equities, ARE, which CFRA has a buy recommendation on, is found in that category.

Aluminum companies up 334% in earnings, really because of the benefit of tariffs and so forth. So their Alcoa, which is a four-star or buy recommendation, would satisfy that.

Independent power producers. Here's a company, Vistra. VST is a four-star or buy recommendation. And then I'll leave off with one more. In the biotech area, expected to be up nearly 72% year-on-year in earnings. AbbVie, A-B-B-V, is also a buy recommended stock.

That's really interesting. Okay, so healthcare real estate investment trusts. I haven't looked into that at all. I've heard of Alexander Real Estate Equities. I have heard of Vistra as well. That's an independent power producer. It's an interesting business model. I don't really understand it, but it basically is, we're not going to be regulated and we're going to sell energy to the highest bidder. And that can be quite a profitable business model with data centers these days, right?

Absolutely. And what we're finding is that it sort of creates a mixed message when it comes to utilities, because when utilities, you know, when someone says utilities, they're looking for companies like Duke Power, Edison Electric, etc., your traditional

regulated energy companies that are really more income oriented plays, whereas Constellation Energy, as well as Vistra and so forth here, these are companies that don't have the overlay of regulation

And they are expected to do fairly well because you have a lot of the AI powering needs, the data centers, the companies that are going to be building nuclear power plants, et cetera. And they are expected to post strong earnings improvements. And it is a cap weighted index. So the stronger that these independent power producers become, the greater an impact that they will have overall on the earnings and the price of the sector.

What other sub-interests, Sam, tell us? Well, also you have passenger ground transportation, which is really Uber. Earnings expected to be up 57% year on year for this year. We also have healthcare technology, so GoodRx and Viva Systems, V-E-E-V, are two that we have

We have hold recommendations on at this point, but they're expected to post a 56% gain in earnings.

And then lastly, heavy electrical equipment up 46%. That's GE Venova, which has been a very strong performer into last year and certainly on a year-to-date basis for this year. But since we've just talked about the winners, there are an awful lot of laggards out there. The underperformers likely to be coal and consumable fuels.

commodity chemicals, footwear, essentially Nike, oil and gas drilling, such as P10, drug retail like Walgreens, leisure products and paper products, such as Louisiana Pacific. All of these groups that I just mentioned are expected to post year-on-year earnings declines in excess of 45%.

Now an opportunist might say, gee, with the expectations so low, again, how can you go wrong? Because chances are, if they're that low, then probably everybody has sold who wants to sell, you know, so maybe you want to consider nibbling at some of these companies.

Sam, what are some investment principles that you've seen work over your career? You started by talking about out of bear markets, you want to move from the winners to the losers. And in bull markets, you want to keep going with the winners. But in terms of investment principles, I'll throw out a few. And if there's one you think a better go, but margin of safety, focusing on growth, valuation. What are some frameworks that you have found most helpful? Right.

I wrote a book a few years back called The Seven Rules of Wall Street. These are rules of thumb or old sayings that still work in terms of embracing investment strategies that outpace the market. I like to say that the best bit of investment advice I ever got came from Clint Eastwood when he was playing Dirty Harry in the movie Magnum Force. He kept mumbling through grit teeth, a man's got to know his limitations.

So I was thinking about my limitations and quite frankly, it's I am highly emotional. In this day and age of instant information, I could experience both fear and greed at the exact same moment. And as a result, you probably would end up being your portfolio's worst enemy by buying at the top and selling at the bottom. So within this book, I focus on three areas, momentum,

correlation and seasonality. Momentum, as I mentioned, basically something as simple as monitoring a 10 month or 200 day moving average.

by at the end of each month owning the top four sectors versus the market, and you own them in equal proportion, and then you hold them for one month, and then you, at the next month, look back and say which were the four best performing sectors over the last 10-month period. So every month, you look back and own the top four sectors,

Over that time frame, you've beaten the market two out of every three years since 1990, hosting a 10.8% compound annual return versus 8.8% for the S&P 500. So a very simple momentum-based strategy that has worked quite well.

Also, what I found in terms of correlation, you have a lot of investors who say, you know, Sam, I know that in order to have fun, you have to go to the amusement park, but I don't like to be on the roller coaster the whole time. Do you have a strategy that also offers the ability to be in the teacups every so often? And well, one strategy is do both at the same time. We know that the best performing sector since 1990 has been technology. Not surprising.

14.1% compound annual growth. However, you paid for it in terms of volatility because its standard deviation based on monthly data was nearly 31. And when you compare that with the S&P 500, yeah, the 14.1% compound annual growth for the tech sector versus 10.6% for the S&P 500, gee, that's a nice level of outperformance on an annual basis.

But the S&P's standard deviation was 17.5 versus 31 for tech. For every $1 of risk that you were willing to embrace for tech, you got 46 cents in return. Whereas for the S&P 500, you got 60 cents in return. So the question is, well, gee, if tech is the poster child for volatility and growth,

You could say that consumer staples, food, beverage, tobacco, is the poster child for stability. Now, you might think that, okay, a portfolio of 50% tech, 50% staples rebalanced annually would give you an okay return somewhere in the middle between tech and staples. But that's on an evenly weighted basis, meaning that if you took a simple average going back to 1990, that would be the case. But remember,

On a compound annual growth basis, if you go down by 50%, you need a 100% advance to get back to breakeven. So a 50-50 portfolio of tech and staples actually returned 13.3% versus tech's 14.1% and had standard deviation of 18.5%.

So your return for risk ratio went from 0.46 for tech to 0.6 for the market to 0.72 for this strategy. So in other words, you ended up with 94% of the return of tech, but with 40% lower volatility. So that is a strategy that I say to investors, look,

if you want to have exposure to tech but you're really not the kind of person who wants to be on the roller coaster the whole time you know then maybe you should also have some exposure to consumer staples rebalance annually and depending on how the market is doing you can brag about one half of your portfolio each time lastly seasonality

you know, it gives you an idea of which sectors tended to well, which ones tend to do poorly during whatever part of the year that we are in. The market's average gain from November through April is about 7% versus 2.5% from May through October, hence the old adage of sell in May and go away. But by sticking with stocks, meaning rotate, don't retreat, focusing on the more defensive areas of the market,

Since 1990, you've essentially doubled the return of the S&P in that May through October period.

And Sam, what about valuation? How helpful do you find that concept to be? How much does it work? I mean, if you buy stocks that have a P.E. of 8, do you do better than if you buy stocks that have a P.E. of 28? And how does that factor into your research? Sure. Well, if you read the book called What Works on Wall Street by James O'Shaughnessy, written back in the 1990s, he did a great study going back to the 1950s

saying, do you want to buy high PE, low PE, high price to book, low price to book, high price to sales, low price to sales? And he basically said, no, you want to buy the low levels of these fundamental benchmarks.

mainly because companies can fudge PEs, they can even fudge book value, but it's pretty hard to fudge price to sales ratios. And take that even further, you could be looking at profit margins and so forth. From a momentum perspective, he had said that you're better off going with high momentum, not low momentum.

Low momentum for a reason that there's an overhead level of resistance that these companies have to break through in order for them to become darlings once again. So think about it.

How many people who own a stock that's hit a 52-week high are going to brag about that stock? And how many of those bragging investors are going to be accompanied by investors who just heard about the brags and want to get in on the move? So FOMO is not just the fear of losing money, but the fear of missing out on the way back up.

Specifically, when it comes to valuations, it's not a great market timing tool at all, but it can be a good measure, if you will, of the potential vulnerability of the overall market. As I mentioned earlier, right now, the S&P 500 is trading at close to two standard deviations above the 20-year mean and more than one standard deviation above the 10-year mean.

Our technology sector group had wanted me to shorten that to five-year mean. And I said, well, then that would simply be boosting the story rather than indicating whether there could be excesses one place or another. So we compromised at 10 years versus 20. But when you look to July of 2023,

The S&P 500 was trading at more than 45% premium to its rolling 20-year forward P.E. ratio, and technology was trading at about an 80% premium. So while it was not necessarily a terrific market timing tool, it did indicate that the market was vulnerable. And when the Fed was sort of hemming and hawing about when are they likely to cut interest rates,

and the market thought, oh, we're heading for a higher 10 year yield. We ended up with a more than 5% decline. We ended up with at least the beginning of a panic, if you will, by investors.

and then the valuations came back into line. So valuations can be helpful. Our analysts, however, look at a GARP approach. CFRA employs about 100 analysts looking at stocks in the S&P 500, as well as dipping into the mid and small cap universes.

So growth at a reasonable price, we use dividend discount models, we use some of the parts and other factors to decide whether a stock should be ranked buy, sell or hold. - Got it. And on an individual stock basis or a sector basis, how helpful do you find valuation? How much do you use it? Talk about that.

I mean, I use valuations just to help. I also look at rolling 200-day moving averages to see how, you know, whether in a sense they have gotten ahead of themselves, whether they are leaning too far over their skis, if you will. And so that can be of help as well. So you're always trying to put your fingers on the pulse of the market, of the sectors, right?

And so I try to offer guidance to our analysts based on historical precedent, based on momentum to say what's working, what's not working, and whether something is likely to be changing course. I personally will look pretty superficially at high level valuations

really to sort of tell a stock market story. Yes, I am the chief investment strategist, but there are times that I like to say I am the head stock market storyteller to sort of position where we are in the market, where we are likely to go, et cetera. But most of the investor money is made by following our buy, hold, and sell recommendations. And what are the most compelling or most frequently told stories and narratives right now, Sam?

I would tend to say that there are two stories. One is what continues to work, which areas do our analysts continue to recommend? And then also looking at Lowry Associates, which is our technical analysis arm, looking at those groups that could be potential breakouts.

So looking in that area, what I try to do is to say, OK, which stocks right now from a proprietary momentum measure are looking fairly attractive? They are above their 150 day moving average as well as their 50 day moving average. And then which are still below their 150 day price moving average.

And so looking at those kind of stocks gives me an idea of where we could end up seeing some breakouts, because in a sense, it's as if they are emerging from under sea level. You can't really visualize that just yet. But if you then look and see which are likely to break above the surface, then that's going to gather investor attention and we could see more money piling into that group.

Got it. Anything interesting going on in the insurance sector? I've looked through a few companies and it seems like they're making a lot of money. And also just any other subsectors within the financial sector, which is a sector you know well. When we do the work, we talk about, okay, well, which of the areas that are expected to do fairly well? Yes, we do have an evaluation of about 20 sub-industries in the financial sector.

and right now those areas that we have favorite recommendations on are the investment banking and brokerage arm so areas like apollo investments transaction and payment processing like visa multi-line insurance companies are also fairly strong as with consumer finance so

looking at companies like Cigna, looking at companies like American Express. These are companies that have fairly good momentum, but also have very high cap weighted stars, which is our stock appreciation ranking system. Like a restaurant or a movie review, five is best and one is worst. Talking about the like the multi-line insurers,

Here is where I'm cheating because this is where I look at our MarketScope Advisor platform and we are looking for those areas that have attractive companies at this point. Essentially, our focus right now, I would say, is more on the market.

The PC area, there's also been a lot of changes going on in the insurance category. So in the property and insurance category areas like Arch Capital, we have a strong buy recommendation on as with Allstate Corporation, but other companies that

that we like are Chubb, AIG, as well as Cincinnati Financial. And so I misspoke. I had Chubb in mind, not Cigna when I was mentioning insurance. - Thank you for that. Well, Sam, I'm glad you brought up Cigna and health insurance because that is a very weak momentum. And I guess that's kind of a euphemism to say,

You would not have wanted to have owned it over the past few months. And one thinks of the biggest health insurance company, United Healthcare, which that stock has just collapsed over the past few months. What is you and your firm's outlook on the subsector of health insurance companies? Because I know there's a lot of interesting things going on there. And I actually did just a somewhat in-depth interview on that sector. Yeah.

United Health Group, we have to actually pat ourselves on the back about it's in the managed care group and we've had a sell recommendation on this stock for a while. Basically feeling that there's problems with the company.

that from a momentum perspective, that it was facing difficulties. And so as a result, we had a sell recommendation on these shares for quite some time. So UnitedHealthcare, run by me again, what was the other group you were looking at? Oh, just the managed care.

Yeah, managed care. So really driven, certainly in the Dow, driven by UnitedHealthcare, but also in the managed care group in healthcare, basically looking at a group that not only has a bottom 10% in terms of relative strength ranking, but also in the outright sell category for our stars on the overall sub-industry.

That's interesting because I know it's a saying that in the investment research industry, hold is a euphemism for sell. So to have an actual sell rating is a very bold call. So congratulations to you and your analysts on that. What are some other companies, Sam, maybe some companies that at least a few of our audience would have heard of, so not too niche, but companies that your firm has a sell rating on now? I find that very interesting.

Okay, well, looking at those, actually, within the US, we have 106 stocks that are ranked sell or strong sell.

Now, I wouldn't be able to know exactly what is the driver for these companies, but we do have like Avery Dennison is in the publishing category. There we've got a sell recommendation on it. Baxter International in the healthcare, Selenese Corporation, Church and Dwight. So basically, if you were to go to cfraresearch.com,

you could actually get a one month free trial to our MarketScope advisor platform. And you could actually then sort on the sell recommendations and see which of the stocks that we don't like and why in order to make some comparisons with your overall portfolio or by then linking on the

the report that we offer, whether there is a company within that category that we happen to favor over that one company. So, you know, there you can look for an alternative that might end up being a better company to own.

And Sam, what are some stocks that you've got a strong buy recommendation on? And in the office at CFRA, everyone's just talking about this stock like, wow, this stock has just continued to overdeliver. And I was so bullish on this, but it just keeps overdelivering. What are the opposite of that?

If we then look to, first off, I think you would look to the large cap space versus the mid and small, primarily because the momentum truly has been with these mega cap stocks. So looking at the S&P 500, those ranked buy and strong buy, we have more than 200 that are in that ranking. But

Those that are ranked five star or best recommendations, there were 38 within the S&P 500. Certainly not a surprise when you think of which groups, which sectors that they fall into, because it's certainly very easy to then say, okay, well, what are the ones that have done well that we think will continue to do well? And so I selected three.

financials, communication services, and information technology, because that's where we have overweight recommendations. And then sorting on the sector itself, we find that within communication services, the best recommendations are T-Mobile and Netflix.

In particular, Netflix, because here's a company that really seems to be firing on all cylinders. It does not have exposure to China. So it is not a company that is likely to be adversely affected by the global trade war. So we think that it knocked the ball out of the park in Q1. And we think we'll end up doing the same in Q2.

In terms of financials, a lot of the banks we think should do fairly well. You know, the smaller banks like Fifth Third, like M&T Bancorp should do fairly well. Brokerage firms like Goldman Sachs and Charles Schwab. Certainly from a technical perspective, we think Charles Schwab, in addition to fundamentals, are looking quite attractive.

But I would tend to say that also the majority of strong buys come from the information technology sector. Semiconductor companies, LAM research, advanced micro devices, but also in software such as Microsoft, Salesforce, ServiceNow,

These are areas that we think should do fairly well. We do have buy recommendations on Broadcom, on NVIDIA. So many of those groups that have done exceptionally well, but we think that there's more percentage upside potential for the five stars versus the four stars.

Sam, it's been great to get you on on monetary matters. Going back to your one of your first comments, we are within 1% of a high on the S&P 500. You think the third year of a bull market is often the choppiest.

But does that mean, and I'm asking you for your concluding thoughts here, does that mean that you think we are in the middle of a multi-year bull market? And are you, just on the entire broad stock market, are you a bull right now? Yes, I am. I like to say I'm a bull, but with a lowercase b. I think that we really do have to set a new all-time high. History says that we probably have anywhere from 600

to 10% to go before slipping into another decline of 5% or more. I think the Fed will end up coming to the rescue, if you will, cutting interest rates in both September and December of this year by 25 basis points each. But obviously they're going to remain data dependent. And so they're going to be looking at inflation data, GDP data,

and so forth. And if the economy does not need the help of lower interest rates, they won't do it in order that they can, in a sense, save their dry powder for when the economy really does need it. But because we're also looking for an earnings recovery in 2026,

Estimates are for 13.5% for the S&P 500. We think that the sort of slowdown that's tariff-induced this year will likely recover as we move into 2026 with easier comparisons.

Sam, it's been such a pleasure to have you on Monetary Matters. People can find you on Twitter at StovallCFRA. Before you leave, tell people quickly about CFRA, as well as the several books you've written. Sure. Well, CFRA is an independent investment research company.

Started out with our forensic accounting side back in the mid-1990s. We added the wealth research, which is the S&P equity research arm that was sold to CFRA in 2016. We added Lowry Research, which is the technical analysis arm. And we have Washington Analysis, our political strategy group. To learn more and to get free trials, please go to CFRAresearch.com.

I've written three books since the mid-1990s, two specifically on sector rotation. Working with the analysts, I would come up with momentum indicators for each of the 120 plus sub-industries in the S&P 500, showing how sectors and sub-industries tended to perform

during different phases of the economic cycle. And Fidelity still uses that graphic in their sector rotation mutual funds. In earlier, I would say like 10 years ago, I wrote the book, The Seven Rules of Wall Street, which are rules-oriented investment strategies rotating among sectors. The emphasis being we want outperformance, not only in terms of price,

but also in batting average. I'm like Pavlov's dog. I want to get fed frequently. I want to be reminded that a strategy has a greater likelihood of beating the market than simply doing so once every two or three years. I think a lot of dogs are like that in real life. They like to be fed often. Sam, thank you again. Thank you everyone for watching. A reminder to subscribe to the Monetary Matters YouTube channel and also leave a rating and review on Apple Podcasts and Spotify. Until next time.

Thank you. Just close this door.