Sectors to Watch for Quarterly Rebalance

Pierre Raymond
Published on

The Broad Market Index was up 0.39% last week and 75% of stocks out-performed the index.

The annual financial statement update is now complete. First quarter 2024 financial statements will begin to appear near the end of April.

Growth continues to improve both on average and more frequently. With corporate growth rising broadly and strongly, the intention is to maintain growth strategies fully invested and make trades to improve portfolio attributes.

The traditional industrial sectors, basic industry and consumer cyclicals (autos and housing) continue to slow, indicating that an industrial recession is underway. However, that is made up for by a continued improvement in the technology sector.

Tech Sector grow continues

The share price index of the Technology Sector has advanced by 24% relative to the Otos Total Market Index since the December, 2021 low. Current relative price to sales is near the highest level in the record of the Sector.

Index down from all time high

Last week the share price index of the Technology Sector fell by 2.1% compared to a 0.3% advance for the Otos Total Market Index. Gaining stocks in the Technology Sector numbered 173 or 69.2% of the Sector total compared to a 38.3% gaining stocks frequency across the 3979 stocks in the Otos U.S. stocks universe.

We have collected final quarter 2023 sales data for 241 of the 250 comparable record companies in the Technology Sector representing100% of the capital value. The Sector capital weighted average sales growth rate is 5.5%. The proportion of Sector market capital accounted for by rising sales growth companies is up to 81.0%, compared to 31.2% last quarter.

Sales grow dips as margins rise

Currently, sales growth is low in the record of the Technology Sector and lower than last quarter. The proportion of total market capital accounted for by rising gross profit margin companies is up to 82.3% compared to 54.6% last quarter.

The Sector is recording a rising gross margin. Inventories are up, diminishing the chance of a future increase in the gross margin. SG&A expenses are low in the record of the Sector and rising. That implies that the Sector has limited scope for further cost containment and rising costs are slowing the EBITDA growth rate relative to sales. The gross margin is rising at a faster rate than SG&A expenses, producing a rising EBITDA margin. The shares have been very highly correlated with the direction of the profit margins. Interest costs are low in the record of the Sector and rising. Higher interest costs not only slow the free cash flow growth rate of the Sector, but are often associated with lower valuation.

Tech Industries to Watch

Telecom Equipment is the only industry showing growing strength in fundamentals compared to this time last quarter. The industries in this sector showing growing deterioration in fundamentals compared to this time last quarter are Aerospace & Defense, Computers, Computer Software, Connectors & Distributors, Electrical Equipment and Semiconductors.

Maintain some cash balances in income strategies since the population of improving companies is smaller and dividend yields are low. We will review stocks to watch next time. Stay tuned.

The more stable the pot appears, the better the attributes. Green and gold are good. Red is bad and the more intense the red the more urgent the call to action.

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Technology Sector

Technology Sector

Consumer Growth Sector

Consumer Growth Sector


Pierre Raymond is a 25-year veteran of the Financial Services industry. Driven by his passion for financial technology he has transitioned from being a quantitative stock picker, to an award-winning hedge fund manager, credit risk manager to currently a RISK IT Business Consultant. Pierre is the cofounder of Global Equity Analytics & Research Services LLC (GEARS) and a current partner at OTOS Inc.