Secular trend favours US equities

The secular backdrop for equities remains positive for 2015, according to Robert Sluymer, Technical Analyst at RBC Capital Markets in New York, and corrections should be viewed as buying opportunities.

This he says is illustrated by the 10-year rate-of-change for the Dow Jones Industrial Average, which touched zero in 2009 (see chart). Sluymer says that when this happened in 1914, 1932 and 1974, there followed two cyclical corrections before sustained uptrends took hold (see red arrows on chart).

Other technical indicators are also positive
Technical metrics for the S&P 500, Sluymer says, reinforce his bullish outlook. Momentum, price trends, equity returns relative to bonds, and Advance/Decline breadth readings are all positive (see chart).

Pullback or pause expected first
Extrapolating existing trendlines gives a target of between 2275 and 2375 by the end of 2015, with key support at 2000-20 and 1820. Sluymer points out, however, that that S&P is likely to pause given it is currently at resistance and intermediate-term momentum indicators are overbought (see chart).

Small caps will be an important barometer
Small-caps are likely to remain an important barometer for equity markets in 2015. Sluymer is expecting relative performance to continue in Q1, but he would become more cautious should relative performance fall to new lows (see chart for Russell 2000).

Healthcare and Technology to lead
In terms of US sectors, Sluymer tracks changes in sector performance by analysing medium-term (one to two quarter) performance shifts at the individual stock level. Using this method, he says:

– Healthcare’s leadership remains intact, followed by Technology
– Discretionary, Financials and Industrials continue to show incremental improvement
– Utilities and Staples appear to be peaking – Energy remains weak