The fourth quarter earnings season has officially started, and traders and investors will be watching closely what the market has in store for the coming year. In this week's interview with Toni Turner of TrendStar Trading Group, we discuss areas of the market that could potentially still hold some opportunity despite trading at such elevated levels.
EQ: The New Year has barely gotten underway and we're already in earnings season. The fourth quarter should be interesting to see how the year closed out for many different areas of the market. Are there any in particular that you're watching right now?
Turner: Of course, Alcoa, Inc. (AA) kicks off the earnings season Thursday after the market closes. However, I’m actually watching with interest to see how the retailers finished out the fourth quarter. We can see how that works out in the aggregate by watching the SPDR S&P Retail ETF ($XRT). The XRT was up 38 percent in 2013, and so we know that this past year, consumers held up well.
We also know that the U.S. consumer makes up two-thirds of GDP, so in order for this glorious uptrend to continue in the market—and certainly riding on the back of the improving economic numbers—we need retailers to stay strong.
Now, Costco (COST) just reported that sales rose 5 percent in December, beating expectations of 2.6 percent. I know retailers is a highly diverse industry group, with some suffering like Sears Holdings (SHLD) and JC Penney (JCP) , and some doing well like Macy’s (M) and Costco, but I want to see in the as a whole how retailers and the U.S. consumer are doing since they are a key part of our improving environment. So that will be an indicator to me.
EQ: We're arguably in a different economic environment now that the Fed has given a clear indication on the next step of its tapering. Does this affect your approach to the market for 2014 as compared to 2013?
Turner: With the 10-year bond yielding over 2.90 percent, we’ll have to take the possibility of higher interest rates into consideration. Of course, rising bond yields can negatively affect bond-like equities such as Utilities and REITs, so we will have to adjust our sector evaluations accordingly.
If the Fed, under Janet Yellen, continues to cut back on the bond buying—–then we’ll need to adjust how we think and we’ll have to be even more judicious in the coming year as to which stocks we choose to invest in.
EQ: You said recently that you aren't keen on adding new long positions as of right now. Do you see some softness in the market as of where we currently sit? Do you anticipate a pullback in the near future?
Turner: I’ve been anticipating a pullback for the past three months, and I’ve been wrong for the past three months. I’m going to admit that, but I’m also in good company. I think there’s standing room only in this particular space.
However, in the first few days of January, the market has a spongy texture. We’ve watched oil prices fall rather dramatically since the last two trading days of December to where it currently is, and oil prices have fallen even more from the September highs, which was at $104.67. Right now, WTI crude futures are trading at $91.80.
Brent oil has fallen as well, although not as much. I do realize that we have maybe an oversupply of oil in the U.S., but this dramatic fall seems to indicate more than that.
In addition to falling oil prices, we can see China’s weakening posture—by looking at the iShares China Large-Cap (FXI) , which has fallen 10 percent off the December high. Right now, it’s falling below the November lows of $35.76. As the second-largest economy in the world, if China continues to lose momentum, we may see Basic Materials fall in concert and it may put a hitch in the giddy-up in the U.S. market.
EQ: What sectors or industry groups are you watching right now?
Turner: One cannot help but see that Healthcare and the Health Care Select Sector SPDR ($XLV) has really moved dramatically higher, and perhaps it can stay in this uptrend for some time to come. Biotechs are getting a lot of play here, though I don’t recommend many biotechs to novice traders because they can be very volatile. With that said, you can watch the SPDR S&P Biotech ETF ($XBI), . although I would wait for a pullback before I entered.
Almost everything right now needs to pull back. I’m watching the Claymore/Delta Global Shipping ($SEA), which I mentioned last time we spoke. A bunch of small shippers here have done well recently, but this too, needs to consolidate before I’d be interested.
Also, I’m watching the First Trust ISE Global Wind Energy ($FAN), but that too only on a retracement. I’m pretty much sitting tight here except for a couple of core positions. I want to wait to see what happens with China and with U.S. interest rates.