In this edition, rental equipment companies haven't dug moats yet; homeowners are repairing remodel spending numbers; GE Vernova might power through the gap between position and performance; and Santos, Crown Castle, and Melrose Industries.

Our analysis of recent data leads us to conclude that the U.S. economy is healthy and consumers are still leading the way. According to the third estimate released by the Bureau of Economic Analysis (BEA), U.S. Gross Domestic Product expanded in the fourth quarter at an annualized rate of 3.4%, up from the second estimate of 3.2%. Consumer spending, designated as Personal Consumption Expenditures (PCE) in the GDP report, contributed 2.2 points of the 3.4% increase in 4Q GDP. Our 2024 GDP forecast is still for 2.0% growth. We are raising our 1Q24 GDP forecast to 2.4% from 2.3% and lifting our 2Q estimate to 1.5% from 1.3%. Our second half estimate is unchanged. We expect 2Q to be the weakest quarter of 2024, with growth ramping to 1.8% in 3Q and 2.3% in 4Q. On April 4, the Atlanta Fed's GDPNow model estimated 1Q24 growth of 2.5%. Based on our analysis of the Nowcast, we believe that PCE, Residential Investment, Intellectual Property, and Government could all add to 1Q GDP, while Equipment, Nonresidential Structures, Net Exports, and Inventories may detract from or add very little to growth. Our 2024 forecast assumes inflation continues to fall and the Fed has completed its rate-hike campaign, with monetary easing likely to begin in the second half of the year. In recent data, the New Orders component of the ISM Purchasing Managers Index for March rebounded to 51.4 from a contractionary (below 50) 49.2 in February. The headline PMI also rebounded to 50.3 from 47.8. That raises our hopes (slightly) for the manufacturing sector. Our outlook for spending in the huge services category remains positive. The services PMI came in at an expansionary 51.4 in March, although it declined from 52.6 in February. The economy is on a growth path, but the yield curve is still inverted so a geopolitical surprise could trigger a slowdown. While economic growth may be uneven in 2024 and 2025, we believe the Fed has the ability to bolster growth if it falters. Our forecast is for GDP to grow 2.0% on 2025.

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. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from global events. As well, the prices of SMID stocks generally are lower than the prices of large-caps. As well, there are long stretches in the record books when SMID stocks have outperformed large-caps. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over a 2003-2021 test period, versus 4.3% 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.

The Bureau of Economic Analysis will update its forecast for GDP this morning. Last month, in its initial estimate, the government indicated that 4Q GDP rose at an annualized 3.3% pace. We think that robust rate will hold steady -- though we note that from 1996 through 2022, the average revision from the advance estimate to the second estimate was plus or minus 0.5%. Key drivers behind the 4Q GDP increase included Personal Consumption Expenditures on durable goods, which grew at a 4.6% annualized rate and contributed 36 basis points (bps) to overall GDP expansion. In fact, the major categories of consumer spending were all important to 4Q GDP. Overall PCE contributed 191 basis points, with spending on services and spending on nondurable goods contributing 106 and 49 bps, respectively. Another large contributor to 4Q growth was nonresidential fixed investment, which added 26 bps, including strong contributions from information processing equipment and software. Government spending, which has been up and down in recent years reflecting the impact of the pandemic-related fiscal stimulus programs from Washington, added 56 bps to GDP growth, despite a contribution of just 3 bps from national defense. Much of the government contribution (40 bps) was from spending and investment at the state and local level. Foreign trade, which has also been volatile, was a surprisingly strong contributor in 4Q. Net exports added 43 basis points, with exports adding 68 basis points but offset by 25 basis points from imports. While it recently seemed likely that 2H23 growth would be the strongest for the foreseeable future (with 3Q up 4.9% and 4Q up 3.3%), the U.S. economy has been resilient. The Atlanta Fed's GDPNow report is calling for 1Q24 growth of 3.2% based on the February 27 update.

Monday Tee Up: Is Inflation Still Tracking Lower?

Our analysis of data that has been reported in recent weeks leads us to conclude that key parts of U.S. GDP are still expanding, despite the impact of inflation, high interest rates, and geopolitics. But growth is not consistent across all segments of the economy and, in many cases, growth rates are slowing or choppy. There is a particular divergence between higher-income consumers who are traveling, dining at restaurants, and splurging to attend special events, while lower-income households are feeling pressure because their grocery bill is about 20% above pre-pandemic levels. While the Fed seems to be engineering a soft landing, a recession in 2024 remains a possibility, though we think the probability is less than 50%. Based on our review of the latest economic fundamentals, our forecast for GDP growth in 4Q23 is now 1.6%, a pronounced decline from the upwardly revised 5.2% increase in 3Q. Our estimate for the full year 2023 remains at 2.8%. Our preliminary forecast for GDP growth in 2024 is 1.8%, as inflation continues to fall and the Fed has wound down its rate-hike campaign, giving it tools to prop the economy if growth falters badly. Generally, our full-year estimates are in the range with other forecasters, though perhaps a bit higher than the consensus. The Wall Street Journal Economic Survey calls for GDP growth of 2.2% in 2023 and 1.0% in 2024. The Federal Reserve Board members and bank presidents are anticipating GDP growth of 2.1% for 2023 and 1.5% in 2024, based on median estimates. Their projections will be updated at the December meeting of the Federal Open Market Committee. The Philadelphia Federal Reserve's Survey of Professional Forecasters is calling for growth of 2.4% in 2023 and 1.7% in 2024. The current Atlanta Fed GDPNow forecast calls for growth of 1.2% in 4Q.

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.

Management's ability to "raise guidance" can often be a catalyst for market-beating returns in the quarters ahead. The third-quarter earnings season is wrapping up, with blended earnings (actual results and the consensus for those still to report) showing a 6.3% gain, year-over-year, according to Refinitiv. That is considerably better than the 1.0% expected at the start of the earnings period, and should be enough to end the "earnings recession" that investors have endured over the past three quarters. Propelling the 3Q outperformance were strong gains in Communication Services, up 46%, while Energy again (like last quarter) is performing the worst, down 33%. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Here is an initial list of BUY-rated companies in Argus Coverage at which management raised guidance or increased its outlook during the 3Q23 EPS reporting season.

The U.S. economy generated 150,000 new jobs in October, just below our forecast of 160,000 and the consensus. September's result was revised lower to 297,000 from 336,000. The unemployment rate rose by one-tenth to 3.9%. On Wednesday, the Fed maintained its 5.25%-5.5% policy rate and said financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. This morning's report from the Bureau of Labor Statistics (BLS) validates the Fed's decision to pause, suggests policy is tight enough to cool the economy, and that the central bank will not need to raise rates when it meets in December. Average hourly earnings increased seven cents month-to-month and are now 4.1% higher year-over-year, below the 4.3% rise in September. The average workweek ticked down to 34.3 hours in October. Job gains occurred in healthcare, government, and social assistance. Employment was little changed in mining, quarrying, and oil and gas extraction; wholesale trade; retail trade; financial activities; and other services. Employment in the motor vehicle and parts manufacturing sector declined by 33,000 largely because of a six-week strike that ended on October 30. Job gains in August and September were revised lower by 101,000. According a separate report from the BLS, there were 1.5 job openings in September for each person unemployed. While this is down from 1.9 a year ago, it still suggests tightness in the labor market compared with an average of 0.68 since December 2000. After this morning's report, stock futures rallied and the yield on the 10-year Treasury declined. Before the release, futures suggested a 20% probability that the Fed will raise the funds rate on December 13. After the release, that dropped to 10%.

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.

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. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but 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.

The pace of home-improvement activity is poised to slow, according to the Leading Indicator of Remodeling Activity (LIRA) from Harvard University's Joint Center for Housing Studies. The LIRA helps forecast activity and turning points in the $485 billion national repair and remodeling market. We find the indicator helpful in analyzing Consumer Discretionary and Industrial stocks. The LIRA projects 5% year-over-year growth in remodeling activity in 3Q23 and a 2.8% increase in 4Q, followed by a decline of 2.7% in 1Q24, and a 5.9% drop in 4Q23. The National Association of Home Builders' NAHB/Westlake Royal Remodeling Market Index (RMI) tells a similar story. In the second quarter of 2023, the RMI declined by 9 points year-over-year to 68, but continued to signal positive sentiment. The index scale is 0-100 and values over 50 indicate that a higher percentage of remodelers view conditions as good. The Current Conditions component of the RMI slipped to 77 in 2Q23 from 83 a year earlier. The Future Indicators component dropped to 60 from 70, as backlogs declined and the pace of new inquiries slowed. Home-improvement activity may be poised to slow, but we don't expect a significant drop. Residential fixed investment currently sits at 3.8% of Gross Domestic Product, which is below its post-World War II average of 4.6% and well below a peak of 6.7% before the Great Recession. In addition, more than half of U.S. homes are over 40 years old and in need of repairs. As well, 90% of homeowners have locked-in mortgage rates and two thirds have a rate below 4%. They may make improvements rather than moving. With demand likely to slow, we like internal catalysts such as efficiency and financial strength that have enabled Home Depot to deliver 15% annual dividend growth over the last five years; Lowe's turnaround plan, that is lifting margins and winning business with contractors; and Masco's repositioning to be less economically sensitive.

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

The Labor Department's nonfarm payrolls report for April 2023 will be released on Friday. This report typically provides the first (and most-important) view of the previous month's economic activity. This month's report will be parsed carefully. The Federal Open Market Committee is widely expected to raise interest rates by 25 basis points to a range of 5.0%-5.25% when it meets on May 3. Signs of strong job creation and wage growth could push the Fed to deliver a further dose of monetary medicine in June. Higher rates are a risk to the banking, housing, and manufacturing sectors that are feeling side effects from nine doses to date. Last month, the economy added a stronger-than-expected 236,000 new jobs. The 3.5% unemployment rate remained a tick above the lowest level since 1969. And there are still 9.9 million job openings available. This month, our forecast anticipates that 185,000 new jobs were created in April. Our estimate is bolstered by low levels of initial unemployment claims and tempered by layoff announcements. According to Challenger, Gray & Christmas, U.S.-based employers announced 89,703 job cuts in March. We look for the unemployment rate to tick up to 3.6% (as more workers re-enter the workforce) and for average hourly wage gains to slow to 4%. A Federal Reserve Bank of Cleveland model that uses the yield curve to forecast the likelihood of a recession over the next year put the probability at 75.5% on April 27, up from 63.9% a month earlier.

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

Stocks were mixed on Tuesday morning as investors awaited new inflation data on Wednesday. Consensus estimates from FactSet currently call for a 5.2% year-over-year increase in the headline consumer price index for March, down from 6.0% in February, and a 5.6% increase in the core CPI (excluding food and energy), up slightly from 5.5% growth in February. On the earnings front, CarMax shares rose strongly after the used car retailer posted better-than-expected fiscal 4Q earnings. The Dow rose 0.3%, the S&P was flat, and the Nasdaq fell 0.4%. Crude oil traded near $81 per barrel, while gold rose $14 to $2018 per ounce.

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. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but 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 $15 billion to define a SMID stock.

The pace of home-improvement activity is poised to slow in 2023 according to the Leading Indicator of Remodeling Activity (LIRA) from Harvard University's Joint Center for Housing Studies. The LIRA helps forecast activity and turning points in the $475 billion national repair and remodeling market. We find the indicator helpful in analyzing Consumer Discretionary and Industrial stocks. The LIRA projects 14.1% growth in remodeling activity in 1Q23 and 9.9% in 2Q, followed by deceleration to 5.8% in 3Q23, and 2.6% in 4Q23. The National Association of Home Builders' NAHB/Westlake Royal Remodeling Market Index (RMI) tells a similar story. In the fourth quarter of 2022, the RMI declined by 17 points year-over-year to 66, but continued to signal positive sentiment. The index scale is 0-100 and values over 50 indicate that a higher percentage of remodelers view conditions as good. The Current Conditions component of the RMI slipped to 75 in 4Q22 from 89 a year earlier. The Future Indicators component dropped to 58 from 77, as backlogs declined and the pace of new inquiries slowed. Home-improvement activity may be poised to slow, but we don't expect a significant drop. Residential fixed investment currently sits at 4% of Gross Domestic Product, which is below its post-World War II average of 4.6% and well below a peak of 6.7% before the Great Recession. In addition, more than half of U.S. homes are over 40 years old and in need of repairs. As well, 90% of homeowners have locked-in mortgage rates, many near pandemic lows around 3%. They may make improvements rather than moving. With demand likely to slow, we like internal catalysts such as efficiency and financial strength that enabled Home Depot's recent 10% dividend increase; Lowe's turnaround plan, that is lifting margins and winning business with contractors; and Masco's repositioning to be less economically sensitive.

The housing industry was an important contributor to the U.S. economic recovery from the pandemic, but high prices and high interest rates lately have priced millions of prospective homebuyers out of the market. The National Association of Realtors recently reported that existing home sales fell for a twelfth consecutive month in January 2023, totaling 4.0 million at a seasonally adjusted annual rate (down 37% from January 2022). The Commerce Department reported that new one-family homes were selling at a 616,000 a year pace in December -- down from 839,000 a year earlier. Meanwhile, a leading indicator for the industry, housing permits, has turned lower as well. According to the Census Bureau, permits were authorized in January at a 1.3 million annual rate, down 27% from 1.8 million in January 2022. Housing prices finally are starting to cool. The S&P/Case-Shiller National Home Price Index for November 2022 notched a fifth straight monthly decline. The average price was still up 7.7% year-over-year, but has slipped 3.6% from the peak in June. The 30-year fixed-rate mortgage has recently eased to 6.3% from a November 2022 peak near 7%, but it is still too high for millions of Millennials who are starting families. MDC Holdings, a builder with stock listed in the S&P Smallcap index, reported that 4Q net orders, which reflect cancelations, fell 93% to 190 homes. The cancellation rate jumped to 24.6% from 8.7% a year earlier. On the bright side, the National Association of Home Builders reported that builder sentiment rose by seven points in February, to 42, a second consecutive increase after a string of 12 monthly declines. While it is too early to tell if this is a turning point, it does seem clear that the housing sector will not boost U.S. economic growth until pricing pressures and mortgage rates ease further.

Stocks fluctuated in volatile trading on Friday morning as investors weighed a new round of earnings reports and monthly consumer sentiment data. The University of Michigan said that its preliminary consumer sentiment index for February rose to 66.4, up from 64.9 in January and above the Reuters consensus forecast of 65.0. However, the inflation expectations reading was higher. The February survey reported that consumers expected prices to rise 4.2% over the next year, up from 3.9% in January. The Dow rose 0.4%, the S&P rose 0.1%, and the Nasdaq fell 0.7%. Crude oil rose 2% to $79.50 per barrel, while gold fell $6 to $1872 per ounce.

The housing industry was an important contributor to the U.S. economic recovery from the pandemic, but high prices and high interest rates lately have priced millions of prospective homebuyers out of the market. The National Association of Realtors recently reported that existing home sales fell for an eleventh consecutive month in December 2022, totaling 4.0 million at a seasonally adjusted annual rate (down 34% from December 2021). The Commerce Department reported that new one-family homes were selling at a 640,000/year pace in November -- down from 756,000 a year earlier. Meanwhile, a leading indicator for the industry, housing permits, has turned lower as well. According to the Census Bureau, permits were being authorized in December at a 1.3 million annual rate, down 30% from 1.9 million in December 2021. Housing prices are finally starting to cool. The S&P/Case-Shiller National Home Price Index for October 2022 showed that the average price has risen "only" 9.2% year-over-year -- and is down 3% from the peak in June. The high prices and high mortgage rates (the average rate on a 30-year fixed-rate mortgage was recently 6.15%) have made the market unaffordable for buyers, including the millions of Millennials who are starting families. This month, KB Home, a builder in the S&P Midcap index, reported that fourth-quarter home orders were down 80% from the prior year and the cancellation rate jumped to 68% of gross orders (from 13% a year earlier). One bright spot this month is that the National Association of Home Builders reported that builder sentiment rose by four points, to 35, after a string of 12 consecutive monthly declines. While it is too early to tell if this is a turning point, it does seem clear that the housing sector will not be supportive of U.S. economic growth until pricing pressures and mortgage rates ease further.

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.

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.

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 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.

This year is turning into one of the worst for the S&P 500. At Monday's close, the year-to-date (YTD) return excluding dividends was an abysmal -24.2%. Over the past 30 years, this loss was exceeded only in 2008, when the '500' collapsed 38.5% during the financial crisis. The index is just a tick worse than 2002, when it declined 23.4%. Even after all these losses this year, we still do not know whether we are even in a recession yet -- and corporate earnings estimates for 2022 and 2023 have not been cut very much.

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. For one thing, 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. 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.

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.

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 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.

The trading week ended July 15 featured some terrible inflation data (CPI, PPI). While the stock market was weak following these numbers, the indices all saw nice intraday recoveries and then rallied hard on Friday of the week. All the major indices were down for the week, but it could have been a lot worse based on only the headlines. As we have said before, the numbers don't matter as much as the reaction to the numbers -- and that was positive (and certainly a change in recent character for the market).

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 rose on Thursday morning amid earnings reports from major technology companies and new GDP data. The Commerce Department said that the U.S. economy contracted at a 1.4% annualized rate in the first quarter, driven mainly by a wider trade deficit, down from 6.9% growth in 4Q and below the Reuters consensus forecast, which called for growth of 1.1%. The Dow rose 0.4%, the S&P 0.8%, and the Nasdaq 0.6%. Crude oil rose nearly 2% to $104 per barrel, while gold fell slightly to $1890 per ounce.

This edition features the Wastco's potential overheating, Ryman's elder care, Hong Kong and Singapore banks, and Masco, Compass Minerals, and Honeywell.

This edition features the Wastco's potential overheating, Ryman's elder care, Hong Kong and Singapore banks, and Masco, Compass Minerals, and Honeywell.

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.

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.

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.

This edition features Harmonic Drive, our oil markets outlook, Western Union, and Masco, Compass Minerals, and Zimmer Biomet

Stocks fell again on Friday morning amid continued concerns about surging inflation and the impact of Fed rate hikes. Consumer confidence data was weaker than expected. The University of Michigan's consumer sentiment index fell to 61.7 in the first half of February, down from 67.2 in January and below the Reuters consensus forecast of 67.5. The Dow was flat, the S&P fell 0.3%, and the Nasdaq fell 0.7%. Crude oil rose to more than $91 per barrel, while gold traded near $1835 per ounce.

Stocks rose on Wednesday morning. The Consumer Price index showed prices rose 7% year-over-year in December, up from November's 6.8% rise. Excluding food and energy prices, consumer prices rose 5.5%. The Dow rose 0.8%, the S&P 500 rose 0.3%, and the Nasdaq was up 0.3%. Crude oil traded above $82 per barrel, while gold rose $4 to $1823 per ounce.

Often overlooked amid gyrations in the stock market is dividend income, which is an important element of total return. Between 1930 and 2012, dividend income accounted for 42% of total return of the S&P 500, according to Hartford Funds. And that's just the average. In some decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for 15%-20% of returns. Still, in 2018, dividend payments softened the blow when most market indices declined as the Federal Reserve hiked rates. But not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks.

Our rating on the Industrial sector is Over-Weight. After enduring the challenges of the pandemic, the cyclical stocks in the Industrial sector appear well-positioned within the changing political environment. Specifically, we believe that Industrial stocks will benefit from enhanced infrastructure investment and more-lenient trade policies during the Biden administration. The Industrial sector accounts for 8% of S&P 500 market capitalization. Over the past five years, the weighting has ranged from 7% to 12%. We think that investors should allocate 9%-10% of their diversified portfolios to the group. The sector includes industries such as transportation, aerospace & defense, heavy machinery, and electrical equipment. The sector is underperforming the market thus far in 2021, with a gain of 13.5%. It also underperformed in 2020, with a gain of 9.0%, and slightly underperformed in 2019, with a gain of 26.8%. Here are some of our top picks, all of which are rated BUY at Argus.

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.

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.

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.

Second-quarter earnings announcements are nearly complete, with some 90% of S&P 500 companies having reported. The profit recovery from the depths of the pandemic low in 2Q20 was been swift, with earnings growth of 93% in 2Q21, according to Refinitiv. But earnings do not look good just on a relative basis -- the $53.93 projected to be earned by S&P 500 companies for the second quarter is the highest ever for the index. Investors can now turn their attention to the third quarter, when earnings are expected to rise a still-strong 30% year-over-year. Our analysts are always on the lookout for companies that raise their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst to strong returns in the quarters ahead. Here are 20 BUY-rated companies in Argus coverage for which management has raised guidance or increased its outlook during the 2Q21 EPS reporting season.

Stocks rose on Thursday morning following new weekly employment data. The Labor Department said that first-time claims for state unemployment benefits fell to 385,000 for the week ended July 31, down from 399,000 a week earlier but slightly above the Bloomberg consensus of 383,000. The Commerce Department reported that the U.S. trade deficit rose 6.7% to a record $75.7 billion in June, driven by a sharp increase in imports. The consensus forecast was $74.1 billion. The Dow rose 0.6%, the S&P 0.5%, and the Nasdaq 0.6%. Crude oil rose to $69 per barrel, while gold traded near $1805 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.

The stock market was mixed last week, as blue chips moved lower and tech stocks rallied. During Friday's session, the Dow Jones Industrial Average was roughly flat, increasing 13 points, or 0.04%. The S&P 500 was up 0.19%, and the Nasdaq Composite was up 0.35%. For the week, the DJIA was down 227 points, or 0.80%, the S&P 500 was up 0.41%, and the Nasdaq Composite was up 1.85%. Year-to-date, the DJIA is up 12.65%, the S&P 500 is up 13.08%, and the Nasdaq Composite is up 9.16%.