Breadcrumbs

March equities began the month just a fraction off of their all-time highs and closed down 1.74% for the month. This was after experiencing their best month in over 3 years in February, as measured by the S&P 500. Earnings season officially began after the market close on April 8th with Alcoa reporting. Alcoa is a company that was anticipated to benefit from the stronger dollar, as market watchers try to determine the impact of lower oil and a higher U. S. dollar on overall earnings. The following statistics and estimates are courtesy of John Butters, VP and Sr. Earnings Analyst at Factset:

Earnings Growth: For Q115, year-over-year earnings for the S&P 500 are projected to decline by 4.6%. If the index reports a year-over-year decline for the quarter, it will be the first time since Q3 2012 (-1.0%).

Earnings Revisions: On December 31, the estimated earnings growth rate for Q1 2015 was 4.3%. All ten sectors have lower growth rates today (compared to December 31) due to downward revisions to earnings estimates, led by the Energy sector.

Earnings Guidance: For Q1 2015, 85 companies have issued negative EPS guidance and 16 companies have issued positive EPS guidance.

Valuation: The current 12-month forward P/E ratio is 16.7. This P/E ratio is above the 5-year (13.7) average and the 10-year (14.1) average for the index.

Earnings Scorecard: Of the 19 companies that have reported earnings to date for Q1 2015, 16 have reported earnings above the mean estimate and 12 have reported sales above the mean estimate.

In reference to the last point above, investors should keep in mind that earnings have already been revised down throughout the quarter. Although earnings will be down year over year for only the second time in 6 years and the other time was more "unchanged" than substantially down, many companies will beat these lower revised earnings. The point here is....buyer beware of the full story.

Themes for our most recent quant analysis include long the U.S. dollar, international equities in Japan and Hong Kong, healthcare stocks in the U.S., U.S. Treasuries and cash equivalents. The PCM US Bond Index is spread across investment grade corporates and U.S Treasuries of varying maturities covering the short and the long end of the yield curve. The PCM Absolute Bond Index added exposure to the 20 year U.S. Treasury with the remainder in cash equivalent, as it picked up another "Top Gun" award for performance for the 3 year period ending 4th quarter of 2014 from Informa Investment Solutions. This was mistakenly reported as a quarterly award in the last newsletter, but was actually for the three year time period.
PCM Absolute U.S. Sectors continued the theme of U.S. healthcare equities and the remainder in cash equivalents. The PCM U.S. Industries Index is long internet, food and beverage and retail equities, with the remaining 25% in cash equivalents. Like the S&P 500, both of these indexes are just off of their all-time highs.

The April reallocation of the Emerging Market Equity Index is invested in Asian emerging markets, emerging market technology and cash equivalent.
Healthcare, Japan, Hong Kong, the U.S. dollar and cash equivalents are all represented in the PCM Total Return and Stable Growth Plus. (Please note that performance numbers on the website for indexes do not include dividends and are appropriately calculated sequentially.)
The PCM Global Tactical Index is long U.S preferred equities and healthcare, Japan, Hong Kong, and the 20 year U.S. Treasury.
The Alpha One Index is invested in 7-10 year U.S Treasuries. The PCM Absolute Metals Index has 50% exposure to copper and the remaining 50% allocation to silver, while PCM Commodities Index is 50% in silver and 50% in cash equivalent, as this index is seeing very substantial outperformance both last year and year to date vs its appropriate commodity index.
PCM Index Strategy composites have been recognized for performance by Informa Investment Solutions; most recently for the Absolute Bond composite for the 3 year timeframe ending the 4th quarter of 2014, as well as previous awards for 1-year trailing performance and 3-year trailing performance. As of 2nd quarter 2014, the PCM Absolute Bond strategy and the PCM Absolute Commodity strategy both won a "Top Gun" award for performance in their respective category for the 1-year trailing performance period, with the PCM Absolute Bond also winning the "Top Gun" award for 3-year trailing performance. The PCM Alpha 1 strategy was awarded the "Top Gun" performance award for the 1st quarter of 2014. We are very pleased to see these particular multi directional strategies being recognized, as the PCM Absolute Bond and PCM Alpha 1 are particularly timely for where we are in the current market cycle.

By: Melissa Wieder, CFP®, Director Institutional Services

Collaborative insight provided by CIO Michael Chapman


The views and strategies described herein are for illustrative purposes only and may not be suitable for all investors. The information is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as investment advice or a recommendation for any specific PCM or other strategy, product or service. Investors should consult their financial advisor prior to making an investment decision. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. This material contains the current opinions of the author(s) but not necessarily those of PCM and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission. Provident Capital Management, Inc, PCM and Absolute Return Index are trademarks or registered trademarks of Provident Capital Management, Inc., in the United States.©2013, PCM.

About "PCM Quant Coalescence"
Welcome to Provident's bi monthly "Quant Coalescence" communication. We suspect that many of you are no different than us. That is to say that when our quantitative models rebalance every 2 weeks for some indexes or once a month for other indexes, you sometimes find yourselves asking "What is behind a rotation into that ETF?" This communication is our opportunity to "unite for a common end" with our clients and partners; keeping you updated on our thoughts and perspectives. As you know, our indexes are based on an absolute approach: we strive to make money in up markets or down markets, while trying to greatly minimize loss in any market environment.
Our indexes are also quantitative, reflective of our systematic, unbiased and technical approach. Since our indexes are unbiased, the quantitative models would obviously at times rotate into positions that cause us to scratch our heads. Nevertheless, being so close to the analysis as it unfolds, allows us to quickly begin to validate the fundamental reasons behind the quantitative "following of the money." At other times, the trades are not validated right away; the story unfolds as the days pass. We have been very excited about many of these "validations" and "ah ha" moments. We had another "ah ha" moment when we decided that these insights would also be interesting to those who have entrusted us with their financial peace of mind. Our goal is to be short and to the point, specific to what is happening in our indexes rather than a lengthy macroeconomic perspective.

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