Weekly Market Guide - Butler Financial, LTD

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Weekly Market Guide

Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.

Short-Term Summary

After experiencing a ~7% pullback over 6-days, the bounce back of only ~1.8% over 3- days seems pretty lackluster, especially as most of the gains have reversed in today’s trading session. However, under the surface, we continue to believe the intermediate trends remain favorable and the pullback should be accumulated as it is more of a rotation than an exodus from the market. We would continue to stay with large- caps over small-caps and start to add some more cyclical exposure to portfolios.

From a fundamental standpoint, next twelve month (NTM) earnings continue to trend higher with consensus estimates revised ~2.5% higher over the last month. This has been driven by improving fundamentals and the macro environment in the most cyclical areas such as Consumer Discretionary, Industrials, and Materials, which

we believe are worth gaining exposure to at this point (mentioned last week and strength continues to improve with the US Dollar moving lower and Copper moving higher). Additionally, we maintain our conviction that the recent relative performance of the leaders is unlikely to reverse the positive trends we continue to see in the fundamentals for areas such as Technology, Communication Services, and Health Care.

From a technical standpoint, markets and sectors cannot go up forever, so the recent ‘no news’ pullback was a healthy breather with support found at the 50-DMA. We will continue to monitor if this support is able to hold as we are in a historically weak period of time for the equities market from a seasonality perspective. However, if this level is held, we would see this period of stabilization as supportive of equities longer-term. Moreover, we have seen several up volume readings over 80% during the 3-day rally, which is suggestive that investors have conviction to accumulate on market pullbacks.

As will possibly be commonplace during the recovery process, there are likely to be periods of volatility, which can present opportunities. This recovery is likely to be more volatile than in the past as it is highly dependent on the rate of improvement in the virus spread. As such, pullbacks such as the 7% decline would not deter us from the market, as we continue to believe the intermediate term remains intact. However, we would suggest adding some exposure to more cyclical areas.

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Index Definitions

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

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The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.

MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.

MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index’s three largest industries are materials, energy, and banks.

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