The stock market is in a rough patch for the first time since the July to October period of last year. After the major indices hit their secondary highs on April 11 (the Nasdaq hit its all-time high that day), is has pretty much been 'down periscope.' Out of those trading six days, the S&P 500 (SPX), Nasdaq, and Nasdaq 100 (QQQ) have fallen between 0.9% and 2.1% on three (SPX) or four of those days. Despite the very steep downside slope of the Big 3, NYSE breadth actually bottomed on April 12 and 15, illustrating that the selling has been concentrated in Big Tech and the many stocks that were overly extended on a momentum basis.

Stocks were higher on Thursday, with investors apparently moving beyond the panic that set in - for one day - earlier in the week after a hot CPI report. The Dow Jones Industrial Average was up 0.91%, the Nasdaq 0.30% and the S&P 500 0.58% (and at a record closing high). Early in Thursday's session, worries kicked in after the U.S. Commerce Department reported that retail sales dropped 0.8% last month, the biggest decrease since last February. But that bad news also was quickly discounted as recent winter storms were cited as one-time events that likely negatively impacted the data.

Rapidly rising inflation in 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Stocks have recovered thus far in 2023, but gains have been largely driven by only a handful of high-tech companies. Inflation remains high and the Fed continues to raise rates. Is a recession in the offing? With all the uncertainty, is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate. Academic literature and, more to the point, returns history, indicate that Min Vol can deliver market-matching returns on an absolute basis and superior returns on a risk-adjusted basis over various time periods.

Stocks fell again on Friday morning amid continued turmoil in the Middle East and concerns about high bond yields and further Fed rate hikes. On Thursday, Fed Chair Jerome Powell said that rising bond yields could limit the need for additional rate hikes, but that the Fed could still raise rates if necessary to cool the economy and control inflation. On the earnings front, American Express reported strong 3Q results and reaffirmed its full-year guidance. The Dow fell 0.5%, the S&P 1.0%, and the Nasdaq 1.5%. Crude oil rose 1% to $90 per barrel, while gold rose $11 to $1991 per ounce.

The first-quarter earnings season has passed the halfway mark with 292 (or 58%) of S&P 500 companies having reported results through August 1. An impressive 81% of those companies exceeded earnings expectations, while the blended (actual and still to report) earnings decline is now projected at 5.9%, according to Refinitv. The Consumer Discretionary sector still leads with 36% earnings growth, while Energy is now by far the weakest sector, with a 48% profit decline. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst to market-beating returns in the quarters ahead. Here is an initial list of BUY-rated companies in Argus Coverage for which management has raised guidance or increased its outlook during the 2Q23 EPS reporting season.

Rapidly rising inflation in 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Stocks have recovered thus far in 2023, but gains have been largely driven by only a handful of high-tech companies. Inflation remains high and the Fed continues to raise rates. Is a recession in the offing? With all the uncertainty, is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate. Academic literature and, more to the point, returns history, indicate that Min Vol can deliver market-matching returns on an absolute basis and superior returns on a risk-adjusted basis over various time periods.

Last week, we noted that weekly insider-sentiment data from Vickers Stock Research was 'almost' exactly what we'd expect at the start of earnings season, with insiders cautiously positioning themselves for weeks in which they would be on the sidelines because of trading restrictions. But our 'almost' was the result of a significantly bearish one-week sell/buy ratio from insiders at companies that trade on the Nasdaq. That ratio was 13.20 on a scale where anything over 2.50 is bearish, and we wondered if insiders were concerned about a 'buy the rumor, sell the fact' response from investors once earnings reports started to flow in. Now, we can comment on what was indeed a volatile week for the Nasdaq - one that did not overly impact the broader index itself, but did feature headline-grabbing drops for some high-profile stocks.

The first-quarter earnings season is wrapping up, with blended earnings (actual results and the consensus for those still to report) showing a 0.6% year-over-year decline, according to Refinitiv. That is considerably better than the 5.0% decline expected at the start of the earnings period, though still not enough to avoid a technical earnings recession following 4Q's 3.4% decline. Propelling the 1Q outperformance was a 74% beat rate (versus the long-term average of 62%), with strong gains in Consumer Discretionary (+55%) and Industrials (+26%), but drags from Basic Materials and Utilities (both -22%). Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst for market-beating returns in the quarters ahead. Here is an initial list of BUY-rated companies in Argus Coverage for which management has raised guidance or increased its outlook during the 1Q23 EPS reporting season.

Our bond/stock asset-allocation model is indicating that bonds are the asset class offering the most value at the current market juncture, as interest rates have risen over the past few quarters. Stocks remain overvalued, but we note that valuations have improved in recent months. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The model output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is a 0.56 sigma premium for stocks, which is inside the normal range and down from a 0.80% sigma premium late last year. Other valuation measures also show an improvement for stocks in 2023. The current forward P/E ratio for the S&P 500 is 18, which is within the normal range of 10-21 and down from 22 a year ago. The current S&P 500 dividend yield of 1.6% is below the historical average of 2.9%, but up from an ultralow 1.2% as recently as 2021. Based on the current valuation levels, as well as our interest rate and earnings forecasts, we expect a recovery in stock prices in 2023 from bear-market lows. We have established a year-end S&P 500 target of 4,300. Our current recommended asset-allocation model for moderate accounts is 67% growth assets, including 63% equities and 4% alternatives; and 33% fixed income, with a focus on opportunistic segments of the bond market.

Earnings Season: A Little Better than Expected, But...

Stocks were lower Monday morning but retraced their losses by midday. Investors are bracing for consumer and producer inflation readings due Tuesday and Wednesday, respectively while navigating contagion fears. Notably, First Republic Bank (FRC) plunged 67.65% and was halted due to the fallout of Silicon Valley Bank as investors fear contagion to regional banks despite regulators stepping in. The Dow rose 0.8%, the S&P 0.8%, and the Nasdaq 1.4%. Crude oil fell 0.8% to $76 per barrel, while gold rose $49 to $1916 per ounce.

Rapidly rising inflation 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. As well, those fixed-income returns are from eras when the 10-year Treasury bond yield was much higher than the current 3.5% level. So what's a potential equity strategy for investors amid all the uncertainty? Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate.

Last week was the busiest of the quarter for corporate earnings, with a fair number of sharp moves in stock prices following above- or below-consensus results or changes in company guidance. Through October 25, Refinitiv reports that 129 S&P 500 companies have announced earnings, with 74% of those coming in ahead of the EPS consensus. The blended (reported and estimated) growth rate for the full quarter, however, is now at 3.3%. That's down from the 4.5% that was expected at the start of the quarter, which is likely a combination of the magnitude of the earnings misses as well as earnings estimates still coming down for those still scheduled to report. Sectors with the strongest beat rates so far have been Healthcare and Communication Services, where 100% of companies reporting have come in ahead of consensus. The biggest laggard has been Consumer Discretionary, where only 47% have exceeded consensus. Energy dominates, with a 119% blended earnings growth rate versus 3Q21, while Financials are at the other end with a 16% earnings decline. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst to strong returns in the quarters ahead. Here is an initial list of BUY-rated companies in Argus coverage for which management has raised guidance or increased its outlook during the 3Q22 EPS reporting season.

Stocks rose on Tuesday morning as investors weighed a new round of 3Q earnings reports. General Motors shares rose after the automaker posted strong third-quarter revenue and earnings, though management maintained its full-year EPS guidance. UPS also rose after posting above-consensus earnings, while GE fell after disappointing results, driven by losses in its renewable energy business. Growth in housing prices continued to slow. The Case-Shiller index reported a 13% year-over-year increase in home prices in August, down from 15.6% growth in July and below the consensus forecast. The Dow rose 0.6%, the S&P 1.0%, and the Nasdaq 1.6%. Crude oil rose more than 1% to $85.50 per barrel, while gold rose $9 to $1664 per ounce.

Recession? Really? The U.S. economy generated an impressive 528,000 new jobs in July, ahead of consensus expectations that were in the 250,000 range. The unemployment rate dropped to 3.5% (the pre-pandemic level) and the number of unemployed persons was 5.7 million, down from 5.9 million in the prior month. Average hourly earnings increased 15 cents month-to-month and are now 5.2% higher year-over-year, compared to 5.1% a month ago. Revisions to the jobs totals in the two prior months added another 28,000 jobs to the economy. In July, jobs gains occurred in leisure and hospitality, professional and business services, healthcare, government, construction, and manufacturing. The retail industry was relatively steady in terms of employment. The robust employment report suggests the consumer segment of the economy is likely to remain on a growth track, despite the impact of interest-rate hikes, the Russian invasion of Ukraine, and the price of gas. Stock futures were positive ahead of the announcement, but are now lower as the report signals the Federal Reserve is likely to stay aggressive in its fight against inflation.

The Bull Battles Back: Our Monthly Survey of the Economy, Interest Rates, and Markets

Rapidly rising inflation in 2022 has knocked the stock market into a bear market. While growth strategies have suffered the most, value strategies also have declined. Even year-to-date bond prices are lower. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. As well, those returns are from eras when the 10-year Treasury bond yield was much higher than the current 3.0% level. So what's a potential equity strategy for investors amid all the uncertainty? Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate. Academic literature and, more to the point, returns history, indicate that Min Vol can deliver market-matching returns on an absolute basis and superior returns on a risk-adjusted basis over various time periods.

Stocks have struggled in 2022, but insider-sentiment readings from Vickers Stock Research have not at any time suggested a full-on dash to the exits is in order. In general, insiders have bought the dips.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine. As well, the prices of SMID stocks generally are lower than the prices of large-caps. That said, SMID stocks can be risky and large-caps outperformed SMID stocks in 11 of the 19 years in our test period. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Bear Country: Our Monthly Survey of the Economy, Interest Rates, and Markets

The stock market finished a volatile week higher, as Omicron fears subsided. Blue chips underperformed growth stocks as rates remained subdued. During Friday's session, the Dow Jones Industrial Average rose 197 points, or 0.55%. The S&P 500 was up 0.62%, and the Nasdaq Composite was up 0.85%. For the week, the DJIA was up 53 points, or 0.15%, the S&P 500 was up 1.22%, and the Nasdaq Composite was up 3.12%. Year-to-date, the DJIA is up 17.46%, the S&P 500 is up 25.82%, and the Nasdaq Composite is up 21.45%.

Small- and mid-cap stocks (SMID stocks) soared in 2019. They have underperformed large-caps over the past 12 months, but still 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 poised to rebound more quickly once COVID-19 vaccines are more widely distributed and the domestic service economy recovers. As well, the prices of SMID stocks generally are lower than the prices of large-caps. That said, SMID stocks can be risky. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. The Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Stocks were mixed on Wednesday morning amid new manufacturing and employment data. The Institute for Supply Management said that its national factory index rose to 59.9 in August, up slightly from 59.5 in July and above the consensus forecast of 58.6. On the employment front, payroll provider ADP said that U.S. companies added 374,000 jobs in August, up from 326,000 in July but well below the Reuters consensus of 613,000. The Dow fell 0.1%, the S&P rose 0.2%, and the Nasdaq rose 0.7%. Crude oil traded near $68 per barrel, while gold fell $4 to $1814 per ounce.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

With April winding down, you can count on someone, somewhere saying, 'sell in May and go away.' That pronouncement is mainly popular because it rhymes. While it is true that summer is typically a period of relative underperformance, market timing rarely works. And sometimes summer is a good time for stock performance.

Last week, we talked about short- to long-term bonds based on a daily chart analysis. Stepping back (always good to do now and then) and looking at a monthly chart, we note with awe the (we think) longest bull market in history. Interestingly, Treasury yields tend to move in very long cycles, with the prior run-up in yields lasting from 1946 to 1981 -- when the 10-year rose from about 2% to 16%.

With 2.5 months of 2021 in the books, let's see how U.S. markets are stacking up against foreign markets. In past comparisons, foreign markets have been lagging -- and in some cases, badly. The S&P SmallCap 600 is leading in 2021, with an almost 25% gain. No surprise, the Russell 2000 (IWM) is next, jumping 20%. The S&P 400 (MidCaps) has popped 16.5%, while the Dow Transports added 14%. This combination of strength is quite different from recent years.

Stocks continued to fall on Tuesday morning, led by the Technology and Consumer Discretionary sectors, as investors weighed congressional testimony from Fed Chair Jerome Powell. In remarks prepared for the Senate Banking Committee, Mr. Powell noted that the outlook for the economy was still 'extraordinarily uncertain,' despite the impact of vaccines, and that the U.S. was still 'a long way from our employment and inflation goals.' The Dow fell 0.2%, the S&P 0.5%, and the Nasdaq 1.6%. Crude oil traded near $61.50 per barrel, while gold fell $4 to $1804 per ounce.

Small- and mid-cap stocks (SMID stocks) surged in the past quarter. They also have outperformed large-caps over the past 12 months and 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 poised to rebound more quickly once COVID-19 vaccines are widely distributed and the economy recovers. As well, the prices of SMID stocks are generally lower than the prices of large-caps. While SMID stocks can be risky, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20%-25% of the U.S. stock market's capitalization is comprised of SMID stocks. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. We note that the Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Small- and mid-cap stocks (SMID stocks) surged in the past quarter. They also have outperformed large-caps over the past 12 months and 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 poised to rebound more quickly once COVID-19 vaccines are widely distributed and the economy recovers. As well, the prices of SMID stocks are generally lower than the prices of large-caps. While SMID stocks can be risky, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20%-25% of the U.S. stock market's capitalization is comprised of SMID stocks. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. We note that the Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Growth stocks outperformed value, again, in 2020. But in an environment of historically low interest rates (and with the coronavirus and a high unemployment rate seemingly poised to keep them low for a long time), many investors are searching for high levels of income, often be found in value stocks. During recent years, the performance record has favored growth. Since 2010, the Russell 1000 Growth Index has climbed more than 400%, compared to an advance of 200% for the Russell 1000 Value Index. In eight of the past 10 years, growth stocks topped value. That hasn't always been the case. In the previous decade, including the Great Recession, value stocks were better performers, advancing a low 8%, but still better than growth, which declined 15%. Value investors trace their roots to the famous "Security Analysis" textbook, written by Ben Graham, an economics professor at Columbia University. The tide may now be turning. Progress on COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and banks) that have lagged in recent quarters, and value stocks have kept pace with growth stocks in the past quarter. In any event, value is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.5%, compared to the 1.0% current yield on the iShares Russell 1000 Growth Index ETF. This is not unimportant, as the current yield on the 10-year Treasury bond is 0.95%. For our list this week, we have screened our coverage universe for stocks that are BUY-rated by Argus Research analysts, have a Financial Strength rating of at least Medium, and have a yield of 3.0% or higher.

Growth stocks may be outperforming value, again, in 2020. But in an environment of historically low interest rates (and with the coronavirus and economic shutdown seemingly poised to keep them low for a long time), many investors are still searching for high levels of income, which can often be found in value stocks. Progress on COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and regional banks) that have lagged in recent quarters, and value stocks have kept up the pace with growth stocks in the past quarter. The current yield on the iShares Russell 1000 Value Index ETF is 2.5%, compared to the 1.0% current yield on the iShares Russell 1000 Growth Index ETF. This is not unimportant, as the current yield on the 10-year Treasury bond is 0.95%.

Our rating on the Consumer Discretionary sector is Over-Weight. Many employees are splitting time between work and home, and we expect efforts to refresh the home space to continue. Consumer Discretionary niches including housing and retail have been strong, and we look for this strength to extend to the recovering auto industry going forward. The sector accounts for approximately 11% of the S&P 500. We think investors should consider allocating 13%-14% of diversified portfolios to the group. The following are the Consumer Discretionary picks we use in our model portfolios and our Focus List.

Our rating on the Consumer Discretionary sector is Over-Weight. Many employees are splitting time between work and home, and we expect efforts to refresh the home space to continue. Consumer Discretionary niches including housing and retail have been strong, and we look for this strength to extend to the recovering auto industry going forward. The sector accounts for approximately 11% of the S&P 500. We think investors should consider allocating 13%-14% of diversified portfolios to the group. The following are the Consumer Discretionary picks we use in our model portfolios and our Focus List.