Bumps in the Soft Landing

Stocks fell on Monday morning as investors awaited the October consumer price report on Tuesday and earnings from major retailers later this week. They will also be watching developments in Washington ahead of another government shutdown deadline on Friday. On the earnings front, Tyson reported better-than-expected fiscal 4Q EPS, but offered disappointing sales guidance for the current fiscal year amid slowing demand for beef. The Dow was nearly flat, the S&P 500 was down 0.2%, and the Nasdaq 0.2%. Crude oil rose 1% to $78 per barrel while gold traded near $1944 per ounce.

Stocks stumbled in 3Q, as the S&P 500 declined about 3.5% after gaining for three quarters in a row before that. The new bull market remains intact, but is wobbling from labor strife, high interest rates, and a (for now at least) deferred government shutdown. Year-to-date, the broad market index is up about 11.7%. Sector performance shifted in 3Q, as value-oriented groups such as Energy and Financial Services were leaders. The Technology sector dropped 3.0%, but remains up 34% year-to-date. The average stock in the broadly diversified Argus Fundamental Universe of Coverage declined 3.2% during the quarter, and the median stock fell 4.7%. The average BUY-rated stock dipped 2.3%, while the average HOLD-rated stock gave back 5.3%. Here are the 10-best (many from the Energy sector) and five-worst performers from the Argus Universe in 3Q23.

Stocks fell sharply on Wednesday morning after Fitch Ratings surprised investors by downgrading U.S. government debt. Fitch lowered its rating on U.S. debt to AA+ from AAA, citing 'expected fiscal deterioration' over the next three years, a rising debt burden, and repeated political standoffs over the debt ceiling. The White House and the Treasury Department strongly disagreed with the decision, with Treasury Secretary Yellen stating that it was 'arbitrary and based on outdated data.' The Dow fell 0.8%, the S&P 1.3%, and the Nasdaq 2.0%. Crude oil fell more than 2% to $79.50 per barrel, while gold fell $7 to $1972 per ounce.

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

Stocks fell sharply on Tuesday morning, led by declines in regional bank stocks. Treasury Secretary Janet Yellen warned that the U.S. government could run out of funding by June 1, earlier than previously expected, if Congress fails to raise the debt ceiling. Employment data pointed to a cooling labor market. In its monthly JOLTS survey, the Labor Department said that U.S. job openings dropped to 9.59 million on the last day of March, below the Reuters consensus forecast of 9.78 million and the third straight monthly decline. The Dow fell 1.6%, the S&P 1.6%, and the Nasdaq 1.4%. Crude oil traded near $72 per barrel, while gold jumped $26 to $2018 per ounce.

Monday Tee Up: Big Earnings Week, Big Inflation Week

Monday Tee Up: Big Retail Earnings

The stock market showed some promise after the huge October 13 reversal and subsequent rally into early Tuesday October 18, but stocks lost their very short-term mojo. After a loss on Wednesday, the S&P 500 rallied about 40 points (1%) early on Thursday -- but then sold off for the rest of the day, declining 80 points at the low for the day. This scenario (strength in the morning and weakness for the rest of the day) is exactly the opposite of what bulls want.

Stocks rose strongly on Wednesday morning as investors weighed earnings reports from AMD, Starbucks, and CVS along with new U.S. service sector data. The Institute for Supply Management said that its nonmanufacturing index rose to 56.7 in July, up from 55.3 in June and above the Reuters consensus forecast of 53.5. The reading marked the first increase after three straight monthly declines. The Dow rose 0.9%, the S&P 0.9%, and the Nasdaq 1.8%. Crude oil fell 2% to $92 per barrel, while gold fell $19 to $1771 per ounce.

Stocks continued to fall sharply on Monday morning amid a range of economic and geopolitical negatives, as investors awaited new inflation data later this week. On the earnings front, Tyson shares rose modestly after the company posted better-than-expected fiscal 2Q results, helped by soaring meat prices, and raised its full-year sales guidance. The Dow fell 1.8%, the S&P 2.7%, and the Nasdaq 3.5%. Crude oil fell more than 4% to $104.50 per barrel, while gold traded near $1862 per ounce.

West Texas Intermediate (WTI) continues to be volatile, and with its latest bounce back is sitting at $107.30/barrel. After going parabolic in March and reaching $130, crude oil pulled back to $93.50, rallied back to $116.65, and fell to an intraday low of $93 on April 11 before rallying back above $107. In the process, WTI has completed a triangle and would complete a double bottom on a break over $115. It is also possible that oil completed a three-wave ABC reversal, in which wave C was truncated.

Stocks stumbled early in 2022. Growth stocks were the weakest, as Technology, Communication Services, and Consumer Discretionary underperformed. Leading sectors tended to be value-oriented, including Energy, Financial, and Utilities. The average stock in the Argus universe declined 2% in 1Q22, and the median stock declined 4%. The average BUY-rated stock dropped 3.2%, while the average HOLD-rated stock gained 1.4%. Will investors continue to favor value? Will high inflation drive continued outperformance in Energy and Materials? Given interest rates that remain historically low, we expect growth stocks to outperform over time and believe that 2022 simply may be the one-in-five years that value leads. Investors seeking value are encouraged to focus on dividends and yields in the 3%-4% range. Our current Over-weights sectors are Energy, Financial, Healthcare, Industrials, and Materials.

West Texas Intermediate crude oil (WTI) spiked almost 9% on Thursday and was sitting near $104/barrel. It had been pummeled since soaring to an intraday high of $130 last Monday, dropping all the way to $93.50 earlier this week. Crude traced out a topping tail (bearish candlestick) often seen at intermediate-term peaks. Prices went parabolic at the beginning of March, which is also a sign of a blowoff that cannot be sustained. Both the daily and weekly 14-period RSI recently cycled into extreme overbought condition, which is another warning.

West Texas Intermediate crude oil (WTI) popped back to $92.83/barrel on Monday after pulling back to $87.46 on Friday, as the Russian/Ukraine situation remains volatile. If higher interest rates and the prospect of war overseas is not enough for the stock market, higher prices for gasoline, heating oil, and natural gas are certainly weighing on some low- to middle-income consumers. It's ironic that as the pandemic seems to be winding down, stock markets have "bigger" worries to consider.

Stocks fell on Thursday morning following more signs of accelerating inflation. The Labor Department said that U.S. consumer prices rose at a 7.5% annualized rate in January, up from 7.0% in December. The reading exceeded the Bloomberg consensus forecast of 7.3% and was the highest since 1982. The core CPI excluding food and energy rose an annualized 6.0%, up from 5.5% in December. The Dow fell 0.2%, the S&P 0.3%, and the Nasdaq 0.3%. Crude oil rose more than 2% to $92 per barrel, while gold rose $5 to $1841 per ounce.

We are raising 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 Friday, it was strong on Monday. The S&P 500 rose another 1.9%, for a two-day spike of 4.4%, 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 S&P 500 approached a key support area on Monday and bounced quite nicely. The 21-week exponential (EMA) sits at 4,570, and has provided solid support going back to early 2020. Channel support comes in at 4,550, while the middle weekly Bollinger Band lies at 4,578. The low on the "500" yesterday was 4,582. Lower supports come in at 4,445 from the 10-month EMA, and at 4,410 from the 200-day average.

October Surprise: Recouping September's Losses

Back on August 25, with West Texas Intermediate (WTI) near $68/barrel, we said it looked like crude had completed a false breakdown, which made it very likely that the correction was over. WTI had hit one of our targets based on a three-wave ABC decline which targeted $62, and that was basically the bottom. Since then, WTI rallied up to the $70 region, paused for about a week, and looks to be breaking out.

Stocks fell on Friday morning amid earnings from a range of major companies and new consumer spending data. The Commerce Department said that U.S. consumer spending rose 1.0% in June, up from a 0.1% decline in May and above the Reuters consensus forecast calling for 0.7% growth. The core personal consumption expenditures price index (PCE) rose 3.5% from the prior year in June, up from 3.4% in May but below the consensus forecast of 3.7%. Amazon shares fell more than 7%, despite strong earnings, on weaker-than-expected 2Q revenue and disappointing sales guidance for the current third quarter. The Dow fell 0.4%, the S&P 0.6%, and the Nasdaq 0.8%. Crude oil traded near $74 per barrel, while gold fell $11 to $1825 per ounce.

As we approach the midpoint of 2021, and as we have pointed out many times this year and at the end of last year, index and sector outperformance has flipped 180 degrees. Year-to-date (YTD), the S&P 500 has tacked on 11.6%, the Dow Jones Industrials and the NYSE Composite have added almost 15%, the Nasdaq has gained 5.6%, and the Nasdaq 100 (QQQ) is up 5%. Meanwhile, the S&P Mid-Cap 400 has jumped 18%, the Russell 2000 (IWM) has leapt 15.7%, and the S&P Small-Cap 600 (SML) has catapulted 23%.

Stocks rose modestly on Wednesday morning, recovering some of their losses after Tuesday's selloff. On the employment front, payroll provider ADP said that U.S. private employers added 742,000 jobs in April, up from 565,000 in March. The reading was the strongest since last September but missed the Reuters consensus, which called for an increase of 800,000 jobs. The Institute for Supply Management said that its services index fell to 62.7 in April, down from 63.7 in March and below the consensus forecast of 64.3. The Dow rose 0.2%, the S&P 0.3%, and the Nasdaq 0.5%. Crude oil traded near $66 per barrel, while gold rose $7 to $1783 per ounce.

Monday was another day of world-class dichotomy in the stock market. The Dow Jones Industrial Average rose a sparkling 1% and was near an all-time closing high. It was led by big gains in some of its higher-priced issues (it is a price-weighted index), including UnitedHealth Group, Goldman Sachs, and Home Depot.

We have highlighted (repeatedly) the current strong market breadth, even suggesting it might be too strong and in need of a reset. We've also talked about extremely overheated market sentiment, also in need of a nice reset as we see it.

National Oilwell Varco is a leading supplier of oil and gas drilling rig equipment and products, such as downhole tools, drill pipe, and well casing. The company operates on a global scale, with more than a thousand locations in six continents.

Between 2/5/20 and 2/12/20, the S&P 500 traded above 3,300, before its spectacular fall to the 2,300s in the final weeks of March. On 7/22/20, the index closed at 3,276 -- the closest is has come to 3,300 since February. But stocks slid on 7/23 and 7/24 as a rising tide of new coronavirus infections and daily deaths took its toll and investors beat-up on growth leaders. NFLX, among the darling stocks, was the lone riser after Disney pushed its 2020 release slate into 2021.

Stocks were mixed on Monday morning amid growing concerns that companies will suffer lasting damage from the pandemic. Airline stocks fell sharply after Warren Buffett announced that he had exited his positions in the major carriers. Industries trading higher today include metals & mining, biotechnology, and software. Industries trading lower, in addition to airlines, include diversified financial services and consumer finance. The VIX is up 1.16 at 38.35. The Dow fell 0.7%, the S&P fell 0.2%, and the Nasdaq rose 0.6%. Crude oil traded near $20 per barrel, while gold rose $11 to $1712 per ounce.

Investors have been willing stocks higher, even as the coronavirus shows few signs of slowing down. But while the major indices are at or near all-time highs, participation shows signs of thinning out. It's never a good thing when the generals lead (such as MSFT, AAPL) but the troops are not falling in behind them.

Between 2/5/20 and 2/12/20, the S&P 500 traded above 3,300, before its spectacular fall to the 2,300s in the final weeks of March. On 7/22/20, the index closed at 3,276 -- the closest is has come to 3,300 since February. But stocks slid on 7/23 and 7/24 as a rising tide of new coronavirus infections and daily deaths took its toll and investors beat-up on growth leaders. NFLX, among the darling stocks, was the lone riser after Disney pushed its 2020 release slate into 2021.

Stocks were mixed on Monday morning amid growing concerns that companies will suffer lasting damage from the pandemic. Airline stocks fell sharply after Warren Buffett announced that he had exited his positions in the major carriers. Industries trading higher today include metals & mining, biotechnology, and software. Industries trading lower, in addition to airlines, include diversified financial services and consumer finance. The VIX is up 1.16 at 38.35. The Dow fell 0.7%, the S&P fell 0.2%, and the Nasdaq rose 0.6%. Crude oil traded near $20 per barrel, while gold rose $11 to $1712 per ounce.

Investors have been willing stocks higher, even as the coronavirus shows few signs of slowing down. But while the major indices are at or near all-time highs, participation shows signs of thinning out. It's never a good thing when the generals lead (such as MSFT, AAPL) but the troops are not falling in behind them.

Stocks rose on Friday morning following a better-than-expected October employment report. The Labor Department said that the U.S. economy added 128,000 payroll jobs last month, partly reflecting the impact of the GM strike. This was down from a revised 180,000 in September but above the Reuters consensus forecast of 89,000. The official unemployment rate rose to 3.6% from 3.5%. Average hourly wages rose 3.0% on an annualized basis, in line with the consensus estimate. The S&P rose 0.8%, the Dow 1.0%, and the Nasdaq 0.8%. Crude oil rose more than 2% to $55 per barrel, while gold fell $4 to $1511 per ounce.

Large-caps have outperformed over the past 12 months, but small- and mid-caps may be in a better position to generate market-beating returns going forward. For one thing, most smaller companies are often more focused on domestic operations and may not be exposed to the uncertainty surrounding the ongoing trade wars. For another, the long-term record favors small-caps over large-caps. Since 2003, the Russell 2000 Index has climbed 260%, compared to an advance of 189% for the Russell 1000 Value Index. But small-caps can be risky. Large-caps outperformed small-caps in nine of the 16 years of our test period. Annual returns were negative four times for both indices, but the average decline for small-caps was 18% in down years versus an average 12% annual decline for large-caps in down years. The standard deviation for monthly returns was 5.29% for small-caps over the 15-year period, versus 3.89% for large-caps. 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 15%-20% of the U.S. stock market's capitalization is comprised of small- and mid-cap stocks.

GDP Softens, Earnings Top Expectations as Rally Rolls Along

The 4/22/19-4/26/19 trading week was an historical one for the stock market, as the S&P 500 and Nasdaq Composite both reached all-time closing highs. For the year to date, the S&P 500 is up 18.3% on a capital-appreciation basis, and about 20% including dividends.

Return of Government Data Quelling Economic Fears

Large-caps have outperformed over the past 12 months, but small- and mid-caps may be in a better position to generate returns going forward. For one thing, most smaller companies are often more focused on domestic operations and may not be exposed to the uncertainty surrounding the trade wars. For another, the long-term record favors small-caps over large-caps. Since 2003, the Russell 2000 Index has climbed 260%, compared to an advance of 189% for the Russell 1000 Value Index. But small-caps can be risky.

Large-caps have outperformed over the past 12 months, but small- and mid-caps may be in a better position to generate market-beating returns going forward. For one thing, most smaller companies are often more focused on domestic operations and may not be exposed to the uncertainty surrounding the ongoing trade wars. For another, the long-term record favors small-caps over large-caps. Since 2003, the Russell 2000 Index has climbed 260%, compared to an advance of 189% for the Russell 1000 Value Index. But small-caps can be risky. Large-caps outperformed small-caps in nine of the 16 years of our test period. Annual returns were negative four times for both indices, but the average decline for small-caps was 18% in down years versus an average 12% annual decline for large-caps in down years. The standard deviation for monthly returns was 5.29% for small-caps over the 15-year period, versus 3.89% for large-caps. 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 15%-20% of the U.S. stock market's capitalization is comprised of small- and mid-cap stocks.

GDP Softens, Earnings Top Expectations as Rally Rolls Along