What the Market Wants Newsletter - Monthly Analysis of the Market Based on Sabrient's Quantitative Filters

A Light at the End of the Tunnel?

Hopefully, it's not a train heading toward us.

While the month of March was still predominantly a sea of red, a few mini bright spots appeared. Nasdaq was up 0.3% and the Russell 2000 was also up about 0.3%, while the Russell 2000 Value was up 1.25%. Otherwise, most indices showed small losses. The Dow, for example, was down 0.03% while the S&P 500 was down .6%. The worst performing index was the Russell MidCap, down 1.6%.

In both mid-cap and small-cap, the value components handily outperformed their growth counterparts. For example, in small-caps, growth had a loss of 0.65% compared to the aforementioned 1.25% increase in value. Value did do poorly in the large-cap sector, which was likely due to the continued fallout from the subprime mortgage debacle, as was headlined last month by Bear Stearns. It should be noted, however, that during the last few days of the month, financials rallied strongly to post a modest gain for the month. More about this in the sector discussion below.

For the quarter and for the year-to-date, value is slightly outperforming growth, but not by enough to draw any conclusions about style. Given the market turbulence, however, value is probably the better style to be in at this time, despite the market's small recovery of the last few days.

Once again, a few of our filters performed positively. As mentioned in last month's newsletter, positive analyst changes are being greeted warmly, and that filter was by far the best during March. And as in previous months, earnings strength and cash flow continued to generate profits more often than losses. However, as we warned at the end of our newsletter last month, momentum was somewhat perilous, changing its profitability monthly. It generated fairly substantial losses in March.

As for sectors, it was a very good month for telecom, which generated a cap-weighted return of 6.8% for the month, albeit only about 0.75% on an average basis. As mentioned earlier, the financials sector was the runner-up, with a 2.8% average and a 6.3% weighted return. Utilities also did well, while health care, in a surprising give-back of recent profits, did the worst, down 2.3% on an average basis. The materials sector, which we have been high on, was up 2.3% on a weighted basis.

Looking ahead, our sector model favors materials and energy. Financials, while much stronger than for many months, still brings up the rear.

Next update: The 2nd week of May.