Technology and consumer- discretionary stocks could perform worse than other shares as American economic reports struggle to beat rising forecasts, according to Tobias Levkovich, chief U.S. equity strategist at Citigroup Inc. (C)
A drop in Citigroup’s Economic Surprise Index for the U.S. is one of several concerns for the market in the short-term, Levkovich said. The index, which measures the extent to which economic reports beat or miss forecasts, fell to 45.10 on March 2 from 83.70 on Feb. 3, data compiled by Bloomberg show. Consumer-discretionary and technology shares show some of the highest correlations to the Citigroup gauge and “are vulnerable to a pullback,” the report said.
The S&P 500 rose 8.9 percent this year through March 2 as the unemployment rate fell to an almost three-year low of 8.3 percent, jobless claims have fallen to the lowest level since March 2008 and data on consumer sentiment beat forecasts. Technology companies performed the best of 10 industry groups, rising 16 percent, while consumer-discretionary shares gained 11 percent for the third-biggest advance.
“Too many data points are signaling near-term caution, and sticking to our disciplines always trumps emotions,” Levkovich said in the report dated March 2. Because the gauge is based on performance compared with estimates “one does not have to predict any bad economic data in the months ahead to believe the surprise index will move lower from current extended levels,” which “may put some near-term downward pressure on stock prices.”
Utilities, health-care and consumer-staples companies perform better when the economic-surprise index slides, Levkovich said, while financials were “not as correlated as one would think despite capital markets sensitivity for diversified financials or the insurance industry groups,” Levkovich said.
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