Innovation may be hard to define -- but to borrow from former U.S. Supreme Court Justice Potter Stewart, you know it when you see it. The United States economy is full of innovation. It has to be. Manufacturing industries that dominated the economy decades ago - textiles, televisions, even automobiles, to a large degree - have moved overseas, where costs are lower. Yet the U.S. economy, even during the pandemic and the current period of high inflation, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines) and services (such as Zoom calls), and moving into new markets and applications, the domestic economy would not be growing, and capital would not be flooding into the country. Consider that U.S. GDP was approximately $1 trillion in 1930, but was almost $28 trillion at the end of 2023. That's growth of almost 30x. Meanwhile, the U.S. population has grown less than 3x during that time span, to 332 million people from 120 million. The delta between the GDP growth and the population growth is in large part innovation. To take advantage of the key theme of innovation, Argus has identified approximately 30 companies within its universe of coverage that have been combined to form a diversified portfolio, featured in a recent edition of our Theme Model Portfolio series. Most of the companies in the portfolio, which is sponsored by Smart Trust Inc. as the Argus Modern Innovators Unit Investment Trust, are not start-ups -- but are mature companies. They innovate by disrupting industries, launching new products, being first to new markets, and improving existing products and processes.

The United States economy is full of innovation. It has to be. Manufacturing industries that dominated the economy decades ago - textiles, televisions, even automobiles to a large degree - have moved overseas, where labor and materials costs are lower. Yet the U.S. economy, even during the pandemic and the current period of high inflation, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines and AI) and services (such as Zoom calls) and moving into new markets, the domestic economy would not be growing, and capital would not be flooding into the country. The current high level of the U.S. dollar relative to currencies around the world attests to the confidence that global investors have in the durable and innovative U.S. economy.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from unrest in the Middle East, the Russian invasion of Ukraine, events related to China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps, with the P/E ratio on the Russell 2000 Small-Cap Index of 13 compared to a trailing P/E of 25 for the S&P 500. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. From 2003-2021, for example, the Russell 2000 Index had climbed 450%, compared to an advance of 330% for the S&P 500 index. Here are the stocks with market caps below $20 billion that are on the Argus BUY list and recently were added to Argus' Mid-Cap Theme Model Portfolio.

The Fed's favorite inflation indicator, the PCE Price Index, will be released on Friday even though the NYSE will be closed for Good Friday. The index differs from the better-known Consumer Price Index in that its composition is changed more frequently and is quicker to reflect the impact of real-time pricing fluctuations. In the most-recent report, through January, PCE inflation was reported at 2.4%; the latest CPI report, through January, had inflation at 3.2%. Core PCE, which removes volatile food and energy prices, was 2.8% in the latest month, down from 2.9% in the prior month. Our forecasts call for 2.5% for the headline number and 2.8% for the core reading -- roughly in line month-to-month as progress toward the Fed's 2% goal gets harder as the target gets closer. We track 20 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 2.3% rate year-over-year, up 30 basis points versus a month ago. The numbers are distorted somewhat by a sharp decline in Producer Price Intermediate Goods, which are falling at an 8% rate and likely point to easing prices across the inflation spectrum in the months ahead. Focusing on core inflation -- which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy, the five-year forward inflation expectation rate, and the 10-year TIPs Break-even Interest -- our reading is 2.8%, down five basis points month-over-month. That's lower largely because sticky prices like shelter and transportation are starting to ease. Looking down the road, investors are expecting that the Federal Reserve's rate hikes ultimately will tame inflation, with the five-year forward expectation rate at 2.22%.