Estados Unidos

A technical breakout in communications equipment relative performance is being fundamentally-driven. New orders for communications equipment have perked up, led by a re-acceleration in telecom services capital spending (second panel). The telecom service sector has enjoyed the strongest revenue growth of all sectors this quarter, and free cash flow is growing at a mid-teens rate (middle panel). That is driving a pickup in investment, a positive omen for equipment demand. In addition, there is pent-up demand for communications gear following more than a decade of underinvestment. Even telecom equipment exports have recovered, signaling an undercurrent of global demand in an otherwise lackluster world economy. This is powering double-digit sales gains. That is translating into solid output growth and rising productivity. The implication is that dirt cheap valuations are primed for a re-rating, and we moved this group onto our high-conviction overweight list in yesterday's Weekly Report. The ticker symbols for the stocks in this index are: BLBG: S5COMM - CSCO, MSI, HRS, JNPR, FFIV.

Despite our reservations about the broad tech sector, which has bounced under the leadership of only a handful of stocks, we are encouraged by the outlook for the communications equipment sub-component. This extremely undervalued group is enjoying a broad-based technical breakout, based on fundamental improvements. Our industry relative advance/decline line has touched new highs at the same time that the share price ratio has broken decisively above its multiyear downward sloping trend-line on an upsurge in momentum. That alone is indicative of a major trend change, a view that is driven by positive macro forces, please see the next Insight. The ticker symbols for the stocks in this index are: BLBG: S5COMM - CSCO, MSI, HRS, JNPR, FFIV.

The combination of strengthening global growth and more accommodative monetary policy means that spread product can continue to outperform in the coming months. Despite lingering concerns about credit quality in the corporate sector, we recommend moderately increasing exposure to high-quality spread product.

Last week's blowout jobs report had the beautiful combination of strong growth and flat/rising underemployment rates. This supports our expectation of a Fed hike in December rather than one in September.Accelerating growth when the economy is approaching full employment suggests that the equity bull market is not over, though we are entering a more volatile phase.

A two-speed economy requires selective portfolio construction, favoring consumer-oriented and mainly non-cyclical industries. Put communications equipment on the high-conviction overweight list, and stay clear of refiners.

While the BoE and the Fed are increasingly committed to letting inflation expectations rise, the BoJ disappointed once again. The dollar and the pound are likely to experience broad weaknesses, while gold, the euro and commodity currencies have upside. USD/ZAR will fall further in the short term, but the cyclical bull-market is not over.

Media stocks have churned in the past few years, but we view this as setting the stage for outperformance and not a precursor to a decline. While the manufacturing side of the U.S. economy continues to struggle in a world of excess capacity and ongoing deflationary pressures from abroad, the ISM non-manufacturing survey suggests that services activity remains in good shape. Media companies tend to thrive when the service sector is outperforming goods producers, because it heralds top-line outperformance. Our proxy for media productivity, sales/employment, is enjoying a nascent reacceleration, which should support relative forward earnings momentum. Importantly, the relative performance consolidation phase has allowed earnings to catch up with the share price ratio, creating enough value to generate another leg up as earnings get re-rated. Stay overweight. The ticker symbols for the stocks in this index are: BLBG: S5MEDA-CMCSA, DIS, TWX, FOXA, CBS, OMC, VIAB, FOX, IPG, SNI, DISCK, NWSA, TGNA, DISCA, NWS.

While banks are tightening the lending screws in most categories, they remain willing to extend mortgage credit. Long-term mortgage rates are extremely low, and consumers are taking full advantage, as recent U.S. housing data has been on the strong side. We expect the trend to accelerate on the back of firming income growth. The steady uptrend in mortgage purchase applications suggests that owner-occupied purchases are taking over from financially motivated transactions. That has bullish implications for housing-related equities such as homebuilders and home improvement retailers. Importantly, new home sales and existing home prices have surged, with the latter providing increased incentive for homeowners to renovate and invest in order to boost the value of their homes. We reiterate our bullish stance on the S&P homebuilders and S&P home improvement retail indexes. The ticker symbols for the stocks in S&P homebuilders index are: BLBG: S5HOME-DHI, LEN, PHM. The ticker symbols for the stocks in S&P home improvement retail index are: BLBG: S5HOMI-HD, LOW.

Typically when the Fed has begun to lift interest rates, overall credit growth is expanding at a rapid clip because banks have been increasingly lax in doling out credit. Consequently, any deterioration in credit quality can be offset by an expansion in assets. This cycle, according to the latest Fed Senior Loan Officer Survey, banks are tightening lending standards even before the Fed has raised interest rates by much, because there has already been an upturn in non-performing loans. While a more discerning banking sector is a plus for bank balance sheet health over a full cycle, the downside is that overall credit growth is likely to cool. The implication of slower loan growth is that the profit drag from increased reserving may be more pronounced than in past cycles, particularly given razor thin net interest margins and an historically low loan loss coverage ratio. Despite the perception of good value, banks are likely to continue underperforming the broad market. The ticker symbols for the stocks in this index are: BLBG: S5BANKX-JPM, WFC, BAC, C, USB, PNC, BBT, STI, MTB, FITB, KEY, CFG, RF, CMA, HBAN, ZION, PBCT.

With the Fed more sensitive to how its policy affects the global economy, and <i>vice versa</i>, we believe monetary policy will remain accommodative to encourage U.S. and EM growth.