Monday Tee Up: A Big Week

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Stocks rose on Monday morning, led by the Communication Services and Financial sectors, as investors awaited the Fed's next interest rate decision and the October employment report later this week. On the earnings front, McDonald's shares rose after the company posted stronger-than-expected third-quarter sales and earnings. The Dow rose 1.0%, the S&P 0.6%, and the Nasdaq 0.7%. Crude oil fell sharply to $82.50 per barrel while gold rose $12 to trade near $2010 per ounce.

Monday Tee Up: Labor (The Fed's Other Job)

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

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

We recently raised our rating on the Technology sector to Over-Weight from Market-Weight. As interest rates start to fall, IT demand in enterprise and data center markets is holding up. And mounting interest in ChatGPT could herald the age of AI, which could be a huge industry driver. Over the long term, we expect the Technology sector to benefit from pervasive digitization across the economy, greater acceptance of transformative technologies, and the development of the Internet of Things (IoT). Healthy company and sector fundamentals are also positive. For individual companies, these include high cash levels, low debt, and broad international business exposure. The sector is outperforming the market thus far in 2023, with a gain of 12.4%. Tech underperformed the market in 2022, with a loss of 28.9%, and outperformed in 2021, with a gain of 33.4%. The P/E ratio on projected 2023 earnings is 23, above the market multiple. Earnings are expected to grow 14.5% in 2023 after having fallen 3.3% in 2022. Earnings rose 37.9% in 2021 and 7.7% in 2020. The sector's debt ratios are below the market average, as is the average dividend yield of 0.5%. Here is how we use our analysts' Technology sector ideas in our Focus List and Model Portfolios.

Monday Tee Up: Data Hat Trick Includes the Fed, Jobs, and Earnings

The S&P 500 (SPX) broke out of its trading range in the early going on Monday and, at one point, was up over 56 points or 1.4% (adding nicely to Friday's gains). Unfortunately, the sellers then took over and put the kibosh on the stock market -- with the SPX falling all the way back to the top of the recent range. Can we blame the Fed for putting a ceiling on the market once again, as the central bank remains steadfastly hawkish even though inflation is clearly easing?

This is an interesting week in the financial markets, with November CPI reported this morning, the FOMC rate announcement on Wednesday, and Fed Chair Powell's news conference 30 minutes after the announcement. There is a 75% probability that the Fed raises rates by 50 basis points (bps), bringing the target rate to 4.25% to 4.5%. That will be the highest rate since late 2007. Looking to mid-2023, the highest probability for the funds rate is between 4.75% and 5.25%.

Stocks were mixed on Thursday morning following more 3Q earnings reports and new economic data. The Commerce Department, in its advance estimate, said that U.S. GDP rose at a 2.6% annualized rate in 3Q, up from a 0.6% decline in 2Q and above the Reuters consensus forecast of 2.4% growth. The strong reading was driven by growth in net exports, while consumer spending slowed. Meta shares plunged 22% on concerns about declining advertising revenue and heavy investment spending on the company's metaverse initiative, while McDonald's rose 4% following stronger-than-expected earnings and same-store sales. The Dow rose 1.4%, the S&P rose 0.3%, and the Nasdaq fell 0.5%. Crude oil traded near $89 per barrel, while gold fell slightly to $1665 per ounce.

We talked about small caps a few times back in July. After holding key support, they rallied nicely and have outperformed the S&P 500 since May -- albeit by a small margin -- after steadily underperforming the "500" since February 2021. The Russell 2000 (IWM) and S&P SmallCap 600 (SML) peaked in November 2021. IWM broke its bear-market channel last week while the SML is very close. The "2000" has rallied by 18% from its June 16 low, retracing 38.2% of its bear market; the "600" has tacked on 15%, retracing a bit more. On June 16, the IWM was down 32% while the SML was off 26%.

Recent one-week insider-sentiment readings from Vickers Stock Research have been toggling between very positive and neutral. As a result, Vickers' eight-week sell/buy ratios have started to retreat a bit from the exceedingly bullish levels of a few weeks ago. Still, current readings remain well below the 2.00 line that starts the bullish territory for these sentiment gauges. Vickers' current NYSE Eight-Week Sell/Buy Ratio is 1.60, the Nasdaq is 1.87, and the Total, which accounts for activity across all of the exchanges, is 1.74. Those are good sentiment readings under any conditions.

April Deluge: Our Monthly Survey of the Economy, Interest Rates, and Markets

We have raised our intermediate-term technical outlook to neutral from bearish. The market has come roaring back after a week of panic and indiscriminate selling. While we were disappointed with market breadth on January 28, it was strong on Monday, January 31. The S&P 500 rose another 1.9%, for a two-day spike of 4Friday, .4%, the biggest two-day gain since April 2020 when we were coming out of the pandemic low. The Nasdaq spiked 3.4% for a two-day surge of 6.6%, while the Nasdaq 100 (QQQ) has screamed higher by 6.4% on a two-day basis. These are the biggest returns for both indices since November of 2020.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are CVS Health Corp (CVS); Microsoft Corporation (MSFT); Moderna Inc (MRNA); McDonald`s Corp (MCD) and the Focus List deletions are Mckesson Corporation (MCK); HCA Healthcare Inc (HCA); KLA Corp. (KLAC); TJX Companies, Inc. (TJX).

The market ain't afraida' no ghosts, and stocks sailed into Halloween weekend flying high on a witch's broom. The S&P 500, assigned to Dracula's coffin in September, rose up to reach an all-time intra-day high at 4,608 on Friday before finishing the session an all-time closing high of 4,605.

Stocks rose on Thursday morning, despite a weaker-than-expected GDP report, as investors continued to focus on strong third-quarter earnings. The Commerce Department said that U.S. GDP rose at a 2.0% annualized rate in 3Q, the weakest reading since 2Q20 and below the Reuters consensus forecast of 2.7% growth. The Dow rose 0.5%, the S&P 0.8%, and the Nasdaq 1.2%. Crude oil fell to $82 per barrel, while gold traded near $1800 per ounce.

Stocks tried to carry last Thursday's strength into Friday, but instead investors were treated to a mixed market, with the DJIA and S&P 500 inching up while the Nasdaq dipped. After several straight down weeks, stocks did rise broadly for the week, with the DJIA and S&P 500 both gaining about half a percentage point while the Nasdaq was little changed.

The Technology sector started slowly in 2021 as investors focused on value stocks. But the sector has come on strong in recent months (up 22% year-to-date) and now is outperforming the market (up 20.7%) as well as value sectors such as Consumer Staples (+8%), Utilities (+10%), Materials (+17%), and Industrials (+18%). The sector is the largest in the U.S. market and now accounts for more than 28% of the S&P 500. Over the long term, we expect the sector to benefit from pervasive digitization across the economy, greater acceptance of transformative technologies, and the development of the Internet of Things (IoT). Healthy company and sector fundamentals are also positive. For individual companies, these include high cash levels, low debt, and broad international business exposure. We have an Over-Weight ranking on the Tech sector and think investors should look to allocate up to 30% of their diversified portfolios to the group. Here is how we use our analysts' Tech sector ideas in our Focus List and Model Portfolios.

The stock market was flat to down last week as positive earnings surprises proved to be baked-in. Tech stocks modestly underperformed blue chips. During Friday's session, the Dow Jones Industrial Average fell 149 points, or 0.42%. The S&P 500 was down 0.54%, and the Nasdaq Composite was down 0.71%. For the week, the DJIA was down 126 points, or 0.36%, the S&P 500 was down 0.37%, and the Nasdaq Composite was down 1.11%. Year-to-date, the DJIA is up 14.14%, the S&P 500 is up 17.02%, and the Nasdaq Composite is up 13.85%.

Stocks were mixed on Monday morning amid a new round of first-quarter earnings reports and weaker-than-expected manufacturing and construction data. The Institute for Supply Management said that its factory index fell to 60.7 in April, down from 64.7 in March and below the Reuters consensus forecast of 65.0. Meanwhile, the Commerce Department said that U.S. construction spending rose 0.2% in March, up from a 0.6% decline in February but well below the consensus forecast calling for 1.9% growth. The Dow rose 0.9%, the S&P rose 0.3%, and the Nasdaq fell 0.5%. Crude oil traded near $64.50 per barrel, while gold jumped $27 to $1795 per ounce.

Sustainable Impact Investing is gaining traction with the global investment community. In January 2020, BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. But the performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as the climate, hunger, poverty, disease, shelter, and workers' rights.

Just when anxiety over the market's direction started to intensify, the S&P 500 said, "I got this," and ended the week at a new all-time closing high (ATH). Note that the closing price was less than a half-point above the prior ATH set on 3/17/21, which in market terms seems like a lifetime ago.

Argus Research has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Director of Research Kelleher typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY at Argus.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Lazard Ltd. (LAZ); KLA Corp. (KLAC); Silk Road Medical Inc (SILK); Pinterest Inc (PINS) and the Focus List deletions are Citizens Financial Group Inc (CFG); Moderna Inc (MRNA); Verizon Communications Inc (VZ); Western Digital Corp. (WDC).

There's nothing like a week-long selling jag to get the bullish juices flowing once again. After the S&P 500 set a new all-time closing high at 3,855 on 1/25/21, GameStop hysteria seized the market. A relatively small set of retail investors, embracing YOLO (you only live once), pushed GME to unsustainable highs in the mid-$300s. Although this occurred among a small group of investors in a small set of stocks, fear grew that an equity asset bubble had been discovered, and broad selling took over. By 1/29/21, the final trading day in January, the S&P 500 had fallen 3.7% or by about 140 points.

Stocks rose on Friday morning following a slightly weaker-than-expected January employment report and a preliminary Senate vote supporting President Biden's $1.9 trillion stimulus package. The Labor Department said that the U.S. added 49,000 nonfarm payroll jobs in January, just shy of the Reuters consensus forecast of 50,000 but up from a revised loss of 227,000 in December. The Dow, the S&P, and the Nasdaq were all up about 0.4%. Crude oil traded near $57 per barrel, while gold rose $20 to $1811 per ounce.

Stocks rallied on Thursday as Democratic control of the Senate raised prospects for increased fiscal stimulus and infrastructure spending under the incoming Biden administration. On the employment front, first-time unemployment benefit claims held below the 800,000 mark for the second straight week. Continuing claims fell to 5.072 million from 5.198 million a week earlier, and came in below the consensus forecast of 5.2 million. The data came ahead of the government's December employment report on Friday morning. The Reuters consensus calls for the addition of just 71,000 new payroll jobs, down from 245,000 in November and the smallest gain since the start of the pandemic recovery in May. The Dow rose 0.69%, the S&P 1.48%, and the Nasdaq 2.56%. Crude oil rose to $51 per barrel, while gold rose $6 to $1914 per ounce.

The Technology sector has led the market recovery from the COVID-19 depths of March 2020. Through November 20, the sector was up 31% for the year, compared to a 10% gain for the S&P 500. The Tech sector is the largest in the U.S. market and now accounts for more than 27% of the S&P 500. Over the long term, we expect the Tech sector to benefit from pervasive digitization across the economy, greater acceptance of transformative technologies, and the development of the Internet of Things (IoT): Healthy company and sector fundamentals are also positive. For individual companies, these include high cash levels, low debt, and broad international business exposure. We have an Over-Weight ranking on the Tech sector and think investors should look to allocate up to 30% of their diversified portfolios to the group. Here is how we use our Tech sector ideas from our analysts in our Focus List and Model Portfolios.

Stocks finished down last week, as an historical year gallops toward a close. The S&P 500 and DJIA were each down less than a percentage point despite the worsening pandemic and the president's efforts to overturn the election results. Still, November has so far logged an 8.8% gain on the S&P 500, propelled higher by the positive vaccine news out of Pfizer and Moderna.

Stocks rose on Thursday morning, recovering some of their losses after Wednesday's sharp selloff. GDP data was strong. The Commerce Department said that the U.S. economy expanded at a 33.1% annualized rate in the third quarter, a reversal from the 2Q decline of 31.4%. The reading was also above the Bloomberg consensus forecast of 32.0%. On the employment front, the Labor Department said that initial claims for state unemployment benefits fell to 751,000 for the week ended October 24, down from 791,000 a week earlier and below the Bloomberg consensus forecast of 770,000. The Dow rose 0.4%, the S&P 1.0%, and the Nasdaq 1.5%. Crude oil fell more than 3% to $36 per barrel, while gold fell $8 to $1872 per ounce.

Sustainable Impact Investing is gaining traction with the global investment community. In January, BlackRock CEO Lawrence Fink, who oversees approximately $7 trillion in assets, announced that his firm would be investing in companies that are making progress on sustainability. Mr. Fink's new focus follows rapid growth in sustainable assets in recent years. According to Opimas, a management consultancy focused on global capital markets, global assets under management in ESG strategies had grown to $40.5 trillion in 2020, doubling in four years and tripling in eight years. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies for various reasons. Now, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues.

Charging Ahead: Our Monthly Survey of the Economy, Interest Rates, and Markets

Charging Ahead: Our Monthly Survey of the Economy, Interest Rates, and Markets

As we move into the second half, S&P sector performance remains very consistent. For the year-to-date (YTD), Technology (XLK) continues to have a massive lead over most other sectors, rising almost 15% so far in 2020. Based on some individual tech names, the performance pales in comparison to some of the asymptotic tech issues. Bringing up the rear is Energy (XLE), with a massive 35% drubbing, and Financials (XLF), with a 24% thrashing.

As we move into the second half, S&P sector performance remains very consistent. For the year-to-date (YTD), Technology (XLK) continues to have a massive lead over most other sectors, rising almost 15% so far in 2020. Based on some individual tech names, the performance pales in comparison to some of the asymptotic tech issues. Bringing up the rear is Energy (XLE), with a massive 35% drubbing, and Financials (XLF), with a 24% thrashing.

Back on May 26, we posed the following question: Is this a new bull market or a rally in a bear market? At the time, a Bank of America poll showed 70% of global advisors were in the bear camp. We have been leaning to the bullish side, and now are starting to see more and more evidence to support such a stance.