Sell High-Beta Stocks. Buy Low-Volatility Stocks. It’s The Business Cycle

Summary

A sound investment strategy takes advantage of the economic environment.

The economic environment drives the relative performance of investments.

The business cycle tells which stocks should be in your portfolio: high-beta vs low volatility.

The main forces driving the business cycle

There are three main types of economic indicators: leading, coincident, and lagging. The lagging indicators are the most important ones for investors because they determine the length of the business cycle and the severity of the economic correction needed to bring them down so the economy can expand again.

Inflation, interest rates, and labor costs are the most important lagging indicators. A rise in inflation reduces consumers’ purchasing power. The rise in interest rates makes purchases of anything less affordable – housing and autos in particular. Rising labor costs hinder profitability. Consumers react to the rise in inflation and interest rates by cutting first the purchase of big-ticket items. This is also the time consumer confidence of the University of Michigan declines sharply.

The slowdown in housing and auto sales are the first developments reflecting the economy is downshifting. Such slowdowns are reflected in equity prices. Coincident indicators such as employment and sales eventually also begin to sputter.

The investment opportunity in equities takes place when the leading indicators – those which were the first to signal the slowdown – are going to rise again.

One of the most important tenets of the business cycle is the slowdown will continue until the causes that created the slowdown are brought under control.

The main causes of the slowdown are the rise in the main lagging indicators: inflation and interest rates. The slowdown will continue as consumers reduce spending until their purchasing power restored again. This happens when inflation and interest rates decline. This is also the time when labor costs decrease, improving business profitability.

As retail sales increase because of rising consumers’ purchasing power, the other coincident indicators also rise: employment, production, and income. These developments will reinforce themselves and the positive loop will continue until the economy overheats.

This is the time when the lagging indicators raise their ugly heads, and the business cycle starts all over again.

Where are we now?

The lagging indicators are rising. Consumer prices keep moving higher – up more than 8%. Interest rates – short-term and long-term – have reached new highs for this business cycle. The two-year Treasury yield soared from 0.2% to 2.6% in the last 12 months. The stock market, an important leading indicator, shows no gains since June 2021 as of this writing. Auto sales and housing have been weakening after several months of rising inflation and interest rates.

Consumers cut spending on big-ticket items first when income after inflation declines as it is happening now (see graphs of buying conditions from University of Michigan survey below). In other words, an increase in the lagging indicators (inflation and interest rates) lead a peak in the leading indicator consumers’ buying conditions (see above chart).

The business cycle is just past Point 7 (see first chart above). The next trends will be slower growth in the coincident indicators. Retail sales and income after inflation are already contracting. Production and employment are still strong. They will have to weaken to reflect cuts in production to reduce inventories.

Inflation and interest rates will decline following more weakness in the coincident indicators (sales, income, production, and employment). In the meantime, growth in business activity will continue to decline until inflation and interest rates drop enough to increase consumers’ purchasing power. It will be a long and drawn-out process.

Economic growth drives sectors’ performance

The environment faced by the financial markets is slower economic growth. This is an important trend because the sectors outperforming the market when the business cycle declines, reflecting slower economic growth, are the non-cyclical sectors (XLP, XLU, XLV, XLRE) ( see chart below, energy being the exception).

The chart shows the percent change over the last 200 days. During a period of stronger growth cyclical stocks (XLI, IYT, XLF, XLE, XLB, XME) outperform the market. The strong performance of the non-cyclical sectors confirms the stock market is past its phase of fast growth.

High-beta and low volatility stocks respond to economic forces

High-beta (ETF: SPHB) and low-volatility stocks (ETF: SPLV) perform in different ways depending on the trend of the business cycle as shown on the following chart.

The above chart shows two sets of graphs. The upper panel represents the graph of the ratio SPHB/SPLV. The busines cycle indicator computed in real-time from market data and reviewed in each issue of The Peter Dag Portfolio Strategy and Management is in the lower panel.

High-beta stocks (SPHB) outperform low-volatility stocks (SPLV) (the ratio in the uppere panel rises) when the business cycle rises, reflecting stronger economic growth due to declining or stable inflation and interest rates.

However, low-volatility stocks (SPLV) outperform high-beta stocks (the ratio in the upper panel declines) when the business declines because of rising inflation and interest rates – as it has been happening since late 2021.

Key takeaways

  • The leading indicators will continue to decline reflecting rising inflation and interest rates.
  • During such time low volatility stocks (SPLV) will continue to outperform high-beta stocks (SPHB).
  • The leading indicators, such as stock prices, autos, housing, consumer sentiment of the University of Michigan, will bottom and rise again following a decline in inflation and interest rates.
  • The decline in inflation and interest rates will be preceded by declines in the coincident indicators (sales and income after inflation, production, and employment).
  • This will be the time when high-beta stocks (SPHB) start outperforming low-volatility stocks (SPLV).

Housing Market Set To Stall

Summary & Key Takeaways

  • Through higher mortgage rates, demand for US housing is beginning to wane.
  • This will have significant cyclical implications for house prices.
  • As house prices growth slows or rolls over and given housings cyclical importance to economic growth, the housing market will move from a tailwind of economic growth to a headwind.
  • However, the structural outlook for the housing market remains on solid footing, and as such any pull-back in house prices will not resemble anything like what occurred in the Great Financial Crisis. Structural undersupply, favourable demographics for first home buyers and solid consumer balance sheets will help provide a floor for the housing market in the years ahead.

The Importance Of The Housing Market

With house prices having increased in value by over 20% this past year, there is now mounting evidence to suggest this trend in housing appreciation is not only set to stall, buy may indeed roll over in the year ahead. Understanding the cyclical and structural standing of the US housing market is a critical component of assessing the business cycle, as any move lower in housing will have critical implications for the economy.

According to the National Association of Homebuilders, the activity in housing through the mechanisms of residential investments and housing related consumption spending contributes to around 15-18% of GDP. As such, real estate cycles should be monitored with in-depth consideration as housing is one of the most cyclical parts of the economy and thus one of the major cyclical drivers of economic growth and consumer welfare. After all, real estate is the biggest asset class on the planet.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/6864b06b-e232-4eb7-af63-86ea6aa6ebbc/capture.jpg?format=1000w

Source: Macro Alf

Due to housing’s sensitivity to interest rates and the close associated of housing and construction, a downturn in housing activity and housing-related spending is a warning sign that the tailwind to the economy that has been the US housing market of late may now be turning into a headwind.

Analyzing the housing market through the lens of demand and supply, mortgage rates, consumer balance sheets and demographics allows us to assess the outlook for US housing from both a cyclical and structural perspective, whilst providing an important insight into where the growth cycle is headed. As it stands, waning demand, rising mortgage rates and temporary increases in supply are all providing a clear cyclical headwind in the housing market that should push prices lower in the coming months, whilst the structural outlook for the housing market remains on solid footing thus providing some comfort that any pull back in house prices will not be akin to 2008.

Housing Market Set To Stall

Starting with housing demand, one of the most reliable longer-leading indicators of both housing activity and economic growth as a whole is building permits. Following the highest year-over-year spike in growth in April of 2021, building permits have been trending lower over the past 12 months.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/88617f43-cd6b-4f80-ac89-6a5559edc1e1/Capture.PNG?format=750w

Given how building permits precede housing construction and are impacted by cyclical factors such as mortgage rates, the trend in permits provides important insight into the direction of housing growth and thus housing construction. This trend lower is clearly indicative of waning demand.

With both 15-year and 30-year fixed mortgage rates hitting their highest levels in over a decade (4.38% and 5.11% respectively) and thus crowding out potential buyers, it is hardly surprising to see demand rolling over. Although much of the outstanding mortgage in the US is fixed in nature, potential home buyers are not afforded this luxury and are subject to these higher mortgage rates.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/ce746a71-7d0f-4fd3-bec7-1a4a4df05f97/Capture.PNG?format=750w

Therefore, it is hardly surprising that both the level and direction of mortgage rates provides a lead on house prices, given they represent the cost of borrowing. After all, this has been the quickest rise in mortgage rate since 1994.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/d32abc86-97cd-4354-9ea1-c0fa30c825c7/Capture.PNG?format=750w

Source: Macrobond

As borrowing costs rise, we see a drag on demand which leads to a fall in mortgage applications and a headwind for house prices. As I have noted, whilst existing home owners are less impacted by this dynamic, any potential new home buyer is now subject to paying the highest mortgage rates in over a decade should they wish to purchases a home at a time whereby house prices are the most expensive they have ever been.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/41cddb84-c985-4d77-9200-188fd5117b53/Capture.PNG?format=1000w

Source: Macrobond

As such, real mortgage rates in particular tend to provide a long lead for house prices and are telling us the market have become overextended.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/6f983004-d5fd-4f78-af87-9a93c9c545cd/Capture.PNG?format=750w

Mortgage rates have a long history in impacting housing affordability and house prices. So long as mortgage rates continue to trend higher and remain elevated, house prices will struggle to move significantly higher in the near term as demand falters. As the chart by Macrobond below illustrates, higher mortgage rates equal less affordable housing.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/67fb8687-9def-4745-9115-2b547f34b15e/Capture.PNG?format=1000w

Source: Macrobond

With housing affordability where it stands today, the spread between consumer’s intentions to buy a home and consumer intentions to sell a home per the University of Michigan is at its widest in a decade. Indeed, buying intentions for housing have not been this low for over 20 years, whilst intentions to sell remain elevated. We are clearly amidst a sellers’ market, and, when there are more sellers than buyers, prices move down accordingly.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/da83b573-bf49-4953-9c31-9db04ef86c47/Capture.PNG?format=750w

On a shorter-term, we can see these trends beginning to show up via home sales, and more importantly, pending home sales. Pending home sales measures the contract activity in housing, and, because sales generally go under contract a few months prior to the actual sale, pending home sales provides us with a short lead on actual home sales. As we can see below, pending home sales have been trending lower on both a quarterly and six-monthly growth rate basis since the latter stages of 2021.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/3eb0bc02-3a67-491d-be6f-3d91f0e46efd/Capture.PNG?format=750w

Indeed, also confirming these trends in demand is the MBA Mortgage Purchase Index, which too has been trending lower through the turn of the year as mortgage rates have soared. As mentioned, mortgage applications activity tends to provide some insight into the direction of house prices as they impact both building permits and home sales. Clearly, demand for housing is waning.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/f38dcfde-5332-4a41-9eea-ebb0c80df103/Capture.PNG?format=750w

Source: EPB Macro Research

Interestingly, the yield curve has also historically been a leading indicator for building permits by around 12-18 months. Despite what you think of the yield curve predictive capabilities for the economy, this largely aligns with my own forward outlook for growth.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/5e1aca79-43bb-407a-8632-ebd4c992d49b/Capture.PNG?format=750w

This has important implications for housing construction. Given how construction within the housing sector provides a significant cyclical boost to the economy (as I will delve into later), waning demand will continue to flow through to construction activity.

Indeed, as we can see below, the trend in residential construction has rolled over and is another indicator suggesting house prices have peaked for now.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/b1a862ba-5492-4c4d-bd86-932d700a666f/Capture.PNG?format=750w

What is also concerning for prices from a cyclical perspective is how housing supply has rebounded over the past 12 months. Though there still remains a structural undersupply of housing, we have seen the biggest year-over-year increase in supply in some time and are now at the average level of months’ supply of housing seen over the past decade.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/e3986bd3-f9ba-4ae4-b465-ab6e2b81eab3/Capture.PNG?format=750w

Such a rise in supply becomes problematic for house prices when met with falling demand, of which the data suggests is clearly evident as I have discussed. This demand and supply dynamic has now become a short-term headwind for house prices and too suggests a pull-back is on the cards.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/2711c366-d926-4da6-a00f-ee850aa8d60c/Capture.PNG?format=750w

Implications Of A Stall In House Prices

Given the dynamics in housing demand, supply and mortgage rates I have discussed, not only are the implications evident for housing prices themselves over the ensuing months, but these dynamics will also have significant implications for both the economic growth and the performance of housing related homebuilder stocks.

Indeed, higher mortgage rates are still pointing to ongoing underperformance for homebuilders (per the ITB ETF) relative to the stock market.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/9253cd1e-50f4-414e-8ec3-113b6eda9505/Capture.PNG?format=750w

Whilst home sales are not supportive of any move higher in homebuilder stocks any time soon.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/ba729910-f8d4-4edd-af98-4250e3804f63/Capture.PNG?format=750w

From a purely technical perspective, homebuilders look vulnerable. Given the outlook for housing and the macro backdrop, I struggle to see any reasons why we do not at least test the $50 support level at some point this year. It is worth noting however that homebuilders do look somewhat oversold on the shorter-term charts, and could to with a bounce in the coming weeks.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/58104def-e82a-4481-a876-865e033feb83/Capture.PNG?format=1000w

I suspect any relief rally to be short lived however. Indeed, as noted recently by SentimenTrader, “when homebuilders underperform equity markets to a significant degree, this has historically not bode well for both the future performance of homebuilders and broad equities going forward.”

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/f7b156e4-4377-423d-87b1-3ebb73aee170/capture.jpg?format=1000w

Source: SentimenTrader

We are also entering a seasonally unfavorable period for homebuilder stocks.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/f07c75f2-655d-4286-a76f-01d4cf5bcbde/deflation.jpeg?format=1000w

This is important to note given housing’s importance to the economy. If homebuilders continue their relative underperformance, it suggests the stocks/bonds ratio is headed lower (which would most likely be through stocks falling further than bonds).

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/eff4e665-7057-4772-8959-62745891fa9b/Capture.PNG?format=1000w

Observing these market internals and their movements are incredibly valuable tools as they provide an insight not only to the prospects for asset markets, but for the economy as a whole. The great Stan Druckenmiller himself has discussed how the best economic predictor he has seen are the relative performance of the cyclical sectors within the stock market.

Homebuilders are certainly echoing this notion given how important housing is to the business cycle. Economic growth and construction are tightly linked, and the trends in housing will give us an indicator of the trends in construction. We can see this relationship below as housing starts tend to lead the growth cycle, as proxied here by the ISM manufacturing PMI. Housing starts are clearly suggestive of slowing growth.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/0b85c285-c040-4a68-b214-f44522a6b621/Capture.PNG?format=750w

A similar relationship can be seen with housing investment and ISM manufacturing new orders, which too is suggesting slower growth and a sub-50 PMI.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/0da94fba-11c1-474e-ab26-106879ac8ecf/Capture.PNG?format=750w

So too is the relationship of residential fixed investments as a percentage of total fixed private investment, one of the more reliable long-term leading indicators of the growth cycle. A slowing housing market is and will continue to be a drag on growth for the time being. Clear are the cyclical implications of the housing market.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/f577f490-7f5a-4808-b631-27a806ca1315/Capture.PNG?format=750w

In almost every business cycle in the past 70 years, housing related investment generally starts to decline as a percentage of total GDP in advance of major economic downturns. When housing starts to decline as a percentage of overall GDP, the economy losses a cyclical tailwind.

We can perhaps find some solace in the fact that residential fixed investment as a percentage of GDP has yet to materially move lower in such a manner that has preceded past recessions, though as I have indicated this is likely to occur in the months ahead, and, depending on how material a decline is seen should help us assess the severity of the economic slowdown.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/6902d1ca-9d4e-4019-987e-841847e6be45/fredgraph-2.png?format=750w

For now, a slowing housing market will negatively impact employment in the residential building and construction sector. Though employment is very much a lagging economic indicator, the timeliness of employment as an indicator can be enhanced by looking at the trends in the more cyclical components of employment, such as residential construction. Residential building and construction related employment is trending lower.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/cb9657fb-d01f-426d-bfa0-edfe5d1a1524/Capture.PNG?format=750w

As are housing related retail sales.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/d68030a6-81a9-4a77-b7a1-f5d428bfcf45/Capture.PNG?format=750w

A pull back in house prices would also be a positive outcome for renters. If we do see rents begin to come down a little or at the very least stabilize for a period of time, this will certainly help alleviate some inflationary pressures in the year ahead, given the Owners’ Equivalent Rent component contributes around 30% of headline CPI.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/d5d569fb-9b7e-44dd-83a2-f28a362220bd/Capture.PNG?format=750w

Median asking rents per the BLS is too suggesting such an outcome, as we can see below.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/30b59eec-b3f1-4196-ab0f-a1d18c678d92/Capture.PNG?format=750w

Structural Tailwinds Remain For The US Housing Market

As the cyclical headwinds for the US housing market are apparent, this is lending credence to many market commentators signaling a bursting of a housing bubble akin to 2008. However, the data does not support this notion, and in fact suggest the structural outlook for US housing is on solid footing.

Indeed, it is important to remember there is a structural undersupply of housing. Despite the pick-up in supply in response to the recent boom in house prices, total housing starts relative to housing stock remains well below the previous cycle highs, whilst the long-term downtrend is clear.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/4c6646cf-c58f-4de6-b9d9-05b4efefbcd2/Capture.PNG?format=750w

Unlike the housing boom of the early 2000s which was largely fueled by subpar lending standards and credit creation, the tailwind for housing looks to be one driven by an undersupply in housing inventory. This should indeed help to keep a higher floor on house prices relative to previous housing cycles.

The fact that housing supply per working age persons continues to trend lower is indeed supportive of this structural dynamic.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/f15ab79e-7828-48b0-8e65-c06f15f0d008/Capture.PNG?format=750w

Unless we see a material pick-up in supply over the coming years, this trend in supply relative to the working age population is only likely to worse as the largest expected population growth over the next five years is likely to be for 29-44 years, aka first home buyers. There is a clear demographic tailwind over the coming years as millennials look to enter the housing market.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/17e76ccf-c261-4954-a2b0-7605e4dc0c85/Capture.PNG?format=500w

Source: Variant Perception

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/c1e29586-57e5-47af-8717-8b898b1c25fe/Capture.PNG?format=500w

Source: Variant Perception

Further supporting these structural tailwinds for housing is the current state of the consumer balance sheet. When analyzing the long-term outlook for the housing market, an ever important consideration is the state of consumers and households.

As it stands, household debt service capabilities are in good stead. Mortgage debt service payments as a percentage of disposable income for households remains near their lowest level in over 40 years.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/ad82c661-37f0-4842-ac02-f72180fb522e/Capture.PNG?format=750w

Given that the majority of currently outstanding mortgage debt is fixed and not variable in nature, the fact that inflation resides well above mortgage rates at present is actually a positive for fixed rate mortgage homeowners as the real cost of their repayments are decreasing.

Likewise, compared to the previous housing bubble, the housing loan to value ratio for households has continued to trend lower as households have de-levered post GFC.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/da57cf7c-4b66-4b91-8f55-e306a9b06385/Capture.PNG?format=750w

Meanwhile, household net worth as a percentage of GDP has climbed to significantly higher levels, for both households as an aggregative and for the bottom 50% of households, although a clear wealth gap remains.

https://images.squarespace-cdn.com/content/v1/5edb072f48c9fd655031c59d/aea0f13c-9c83-47b0-8473-b58604ae6c01/Capture.PNG?format=750w

On paper, homeowners are effectively the best ever. These strong consumer balance sheets will help households whether the storm of rising mortgage rates and a cyclical downturn in housing.

Although house prices look set to pull-back in the ensuing months as a result of the significant cyclical headwinds facing the housing market at present, the evidence suggests that the structural bull market in housing remains intact.

For a look at all of today’s economic events, check out our economic calendar.

Best Dividend Stocks to Buy Now for May 2022

See, dividend payers are typically big, stable companies with rock-solid balance sheets. They not only can rise in value, but also provide stable cash flows. They’re holding their own right now, helping buoy markets overall. Let me show you what I mean.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. Our research shows Big Money moves markets.

In fact, we created the Big Money Index (BMI), which is a 25-day moving average of Big Money buy and sell activity. It tends to be a leading indicator of market movement. Here is the BMI over the last six months laid over SPY:

The BMI is trending up lately because there are sections of strength within the market. Today, I want to focus on four of them – energy, staples, real estate, and health care. Unsurprisingly, they also happen to be big dividend-paying sectors.

Energy stocks have been on fire due to the geopolitical situation right now. Investors have often leaned on them in uncertain times because they pay dividends.

Staples too have been seeing inflows. Recession fears are setting in and investors want the certainty of companies selling what people need.

Chart, histogram

Description automatically generated

The real estate sector saw three HUGE buying days recently as people rush to holding tangible assets with strong cash flows.

Chart, histogram

Description automatically generated

Lastly, health care companies pay big, growing dividends, which is music to investors’ ears right now. Historically, it’s been a defensive area for investors, and it’s performing well now.

Chart

Description automatically generated

Not only do these sectors pay dividends, but the cream-of-the-crop dividend payers in these sectors increase their dividends regularly. That means investors get a raise, which is always welcome. So, those four strong sectors are featured in the top five dividend-paying stocks we like: XOM (energy), MO (staples), EXR (real estate), JNJ (health care), and ABBV (health care).

Exxon Mobil Corporation (XOM) Analysis

Up first is Exxon Mobil, which is an oil and gas producing giant that has consistently paid a big dividend (currently it’s at 4.0%).

Even though great stocks can be volatile, like Exxon Mobil the last few years, these companies are worthy of attention. Check out XOM:

  • 1-month performance (11.8%)
  • Historical Big Money signals

Just to show you what our Big Money signals look like, have a look at the buy signals XOM has made the last year in the chart below. Green bars show it was likely being bought by a Big Money player according to MAPsignals.

When you see a lot of them, as XOM has this year, I call it the stairway to heaven:

Source: www.MAPsignals.com

But, what about fundamentals? As you can see, XOM’s sales are strong, and its debt is manageable:

  • 1-year sales growth rate (+57.4%)
  • Debt/equity ratio (+31.5%)

Altria Group, Inc. (MO) Analysis

Next up is Altria Group, which is a tobacco company that has paid dividends for decades. Its current dividend yield is 6.5%.

Check out these technicals for MO:

  • 1-month performance (+7.1%)
  • Recent Big Money signals

Let’s look long-term. These are the top buy signals for Altria Group since 1990. The Big Money has bought time and again:

Source: www.MAPsignals.com

Let’s dive deeper. As you can see, Altria Group has been a stabile giant:

  • 1-year sales growth rate (+1.3%)
  • 3-year sales growth rate (+2.5%)
  • Profit margin (+11.7%)
  • Forward price-to-earnings ratio of 11.4x earnings

Extra Space Storage Inc. (EXR) Analysis

Another dividend-paying name we like is Extra Space Storage, which owns and operates self-storage facilities throughout the U.S. and Puerto Rico. It pays a nearly 2.3% dividend right now.

Strong dividend payers usually have Big Money buying the shares, and EXR has that. It’s also jumped in price recently:

  • 1-month performance (+13.1%)
  • Historical Big Money signals

Below are the top Big Money signals EXR has made since 2010. That’s the JUICE!

Source: www.MAPsignals.com

Now let’s look under the hood. Extra Space Storage’s sales growth and profits are impressive. I expect more in the coming years:

  • 1-year sales growth rate (+12.0%)
  • Profit margin (+50.5%)

Johnson & Johnson (JNJ) Analysis

Number four on the list is Johnson & Johnson, which is a health care behemoth and one of the biggest companies in the world. It just posted great earnings and raised its dividend by 6% (it currently yields almost 2.5%).

Here are the technicals important to me:

  • Year-to-date performance (+7.0%)
  • Historical Big Money signals

Below are the top Big Money signals for JNJ since 2006:

Source: www.MAPsignals.com

Let’s examine a bit more. Johnson & Johnson has been growing nicely and it should continue:

  • 1-year sales growth rate (+13.5%)
  • 2-year vs. 1-year EPS growth estimate (+5.5%)

AbbVie, Inc. (ABBV) Analysis

Our last dividend payer is AbbVie, which is a pharmaceutical company with many different focus areas. It makes a lot of money, which means it can pay big dividends (currently it yields more than 3.6%).

Check out these technicals:

  • Year-to-date performance (+15.0%)
  • Historical Big Money signals

ABBV is a high-quality stock with a high-quality dividend. That’s why it’s made the Top 20 report 14 times since 2012:

Source: www.MAPsignals.com

Now look under the hood. The company has had solid sales and earnings growth:

  • 3-year sales growth rate (+20.6%)
  • 3-year EPS growth rate (+44.3%)

Bottom Line and Explanatory Video

 

XOM, MO, EXR, JNJ, & ABBV represent top dividend-paying stocks to buy now for May 2022. Strong fundamentals, big and growing dividends, and historical Big Money buy signals make these stocks worthy of extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in MO, EXR, & ABBV in personal and managed accounts, and no positions in XOM or JNJ.

Contact:

https://mapsignals.com/contact/

 

Sector Rotation Strategy Reveals The Outperforming Sectors For Trend Trading

The stock market has experienced tremendous volatility since late November 2021 and the 4 major indices such as S&P 500 (ES), Dow Jones (YM), Nasdaq 100 (NQ) and Russell 2000 (RTY) has corrected more than 10% from the peak to the trough in February 2022. Since then, the rally in March 2022 is considered as a Wyckoff change of character, which changed the short-term market environment from downtrend to uptrend.

Due to the high volatility (both to the downside and to the upside) as shown up in the market, picking the right sectors followed by buying the outperforming stocks are the keys to be profitable in stock trading.

Smart money has rotated out from the previous leaderships and progressively into different sectors as a result of the on-going sector rotation. Let’s start with a top-down approach to determine the outperforming sectors below.

Top 4 Outperforming Sectors – XLE, XLP, XLU, XLV

There are two elements to focus on in order to determine the outperforming sectors when analyzing the sector charts using the ETFs, which are the relative strength and the price structure. Refer to the chart of XLE (Energy), XLP (Consumer Staples), XLU (Utilities) and XLV (Health Care) below:

XLE has been in a clear uptrend with higher high and higher low since January 2022 while the relative strength (below the chart and annotated in orange) trending up. S&P 500 is used as a benchmark in the relative strength indicator. Rising in the relative strength means XLE outperforms S&P 500 since January 2022.

XLP, XLU and XLV shows outperformance in the relative strength index since December 2021 while their price just hit a higher high recently.

These 4 sectors – energy, consumer staples, utilities and health care show strong price action with their prices break the previous high while outperforming S&P 500.

Sectors Comparison – XLB, XLRE, XLI, XLF

Next let’s compare XLB (Materials), XLRE (Real Estate), XLI (Industrial) and XLF (Financial) below.

The top 2 charts, XLB and XLRE showed outperformance in the relative strength pane since November and December 2021 yet their prices still did not break above the previous swing high. These 2 sectors outperform S&P 500 yet they are not the strongest because of the price structure, which might take more time to unfold.

XLI and XLF show similar relative strength comparing to S&P 500 while their price structures form lower low and lower high, which is a sign of weakness.

Lagging Sectors – XLK, XLY, XLC

The last 3 sectors, XLK (Technology), XLY (Consumer Discretionary), XLC (Communication Services) are the lagging sectors, as shown below.

Both their price structures and the relative strength trend down with lower low and lower high. These 3 sectors are clearly not in favored by the smart money since December 2021.

It is essential to focus on the outperforming sectors like XLE (Energy), XLP (Consumer Staples), XLU (Utilities), XLV (Health Care), XLB (Materials) and XLRE (Real Estate) and to dive into the outperforming industry groups within the sectors before picking the stocks showing Wyckoff accumulation pattern for trend trading.

Stock Market Outlook Video Using Wyckoff Method

Let’s find out where the prices of S&P 500, Nasdaq 100, Dow Jones and Russell 2000 likely to go to. Watch the video below to determine how to use Wyckoff method to derive a directional bias with the volume and the price action alone. Visit TradePrecise.com to get more stock market insights in email for free.

Big Money Trusts Medical Properties

And hospital-focused real estate investment trust or REIT could rise even more due to strong earnings and leases that increase with inflation. But another likely reason is Big Money lifting the stock.

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Medical Properties has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals MPW has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted six Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Medical Properties has been growing sales at double-digit rates. Take a look:

  • 1-year sales growth rate (+23.6%)
  • 3-year sales growth rate (+26.3%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, MPW has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

MPW has a lot of qualities that are attracting Big Money. It’s made this list 13 times since 2016, with its first appearance on 5/10/2016…and gaining 111.01% since. The blue bars below show the times that Medical Properties was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the real estate sector according to the MAPsignals process. I wouldn’t be surprised if MPW makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The Medical Properties rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus it currently pays a 5.11% dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in MPW at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/

 

Big Money Hoards Shares of Life Storage

And despite a near-term drop, the real estate investment trust or REIT focused on self-storage facilities in the U.S. and Canada could rise even more due to strong demand. But another likely reason is Big Money lifting the stock.

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Life Storage has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals LSI has made the last year.

The last few months have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 28 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Life Storage has been growing sales and earnings at double-digit rates. Take a look:

  • 1-year sales growth rate (+22.8%)
  • 3-year earnings growth rate (+32.1%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, LSI has recently become a top-rated stock at my research firm, MAPsignals. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

LSI has a lot of qualities that are attracting Big Money. It’s made this list 6 times since 2016, all within the last year, first appearing on 8/10/2021…and gaining 13.69% since. The blue bars below show the times that Life Storage was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the real estate sector according to the MAPsignals process. I wouldn’t be surprised if LSI makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The Life Storage rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus its dividend was recently raised to 2.6%. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in LSI in managed accounts at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/

 

Rexford is the “Real” Deal for Big Money

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And Rexford has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals REXR has made the last year.

The last few months have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 21 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, Rexford has been growing sales at a double-digit rate. Take a look:

  • 1-year sales growth rate (+34.3%)
  • 3-year sales growth rate (+27.3%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, REXR has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

REXR has a lot of qualities that are attracting Big Money. It’s made this list nine times since 2016, with its first appearance on 6/18/2019…and gaining 92.5% since. The blue bars below show the times that Rexford was a top pick:

Source: www.mapsignals.com

It’s been a top stock in the real estate sector according to the MAPsignals process. I wouldn’t be surprised if REXR makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The Rexford rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside. It also offers a 1.30% dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in REXR in personal or managed accounts at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer

https://mapsignals.com/contact/