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.

Argus 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 Research 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 Jim 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 Dell Technologies Inc (DELL); Autozone Inc. (AZO); Pinterest Inc (PINS); Oshkosh Corp (OSK) and the Focus List deletions are MongoDB Inc (MDB); Old Dominion Freight Line, Inc (ODFL); Tesla Inc (TSLA); Twilio Inc (TWLO).

The 'Energizer Bunny' stock market seems to have a lot of juice left, as the major indices powered to new all-time highs on Monday, January 29, while smaller-cap stocks also joined in. The S&P 500 (SPX) and the S&P 100 rose 0.8%, the Nasdaq and Nasdaq 100 rallied a bit more than 1%, the S&P 400 tacked on 0.9%, and the Russell 2000 led the day, popping 1.7%. Ten of the 11 SPX sectors rose, with Consumer Discretionary, Technology, Communication Services, Real Estate, Healthcare, Industrials, Utilities, and Staples all rising 0.6% to 1.5%.

Monday Tee Up: Let the Shopping Begin

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 U.S. stock market tends to rise, not withstanding the performance in August 2023 (which featured a 2.1% slide in the S&P 500). The long-term upward trajectory has a foundation in the country's democratic political system and its market-based, capitalist economic system. In theory, the stock market efficiently allocates the nation's capital, generating solid returns. And then there is September. Indeed, our analysis of monthly returns going back to 1980 indicates that September is now the only month with an average loss. Not every September is negative. The month has a "win percentage" of 47%. But there have been some bombs, including 1986 (-8.5%), 2001 (-8.2%), 2002 (-11%), 2008 (-14%), and 2011 (-7.2%). Last year, the S&P 500 fell 9.3% in the month, and 2022 was a clunker with a loss of 4.8%. September is a transition month: the August doldrums are over and corporations get back into gear after Labor Day; the IPO market typically picks up; and the Federal Reserve meets, which can add to volatility. And sometimes, ominously, the third-quarter earnings season approaches. By the end of the third quarter, companies are pretty sure if they are on track to meet their financial targets. If they are not, and they pre-warn about disappointing results, investors can be quick to sell not just a company but an entire sector.

Election Implications for Investors

In our previous commentary on insider sentiment, we noted five weeks of bullish sentiment based on data from Vickers Stock Research. We also noted a slowing in the bullish mood; not a move to neutral or bearish, but a slowing in the growth of bullish sentiment. Among the data, insider sentiment from companies that list on the Nasdaq remained atop the leader board.

Stocks fell on Wednesday morning following more 4Q earnings reports and new retail sales data. The Commerce Department reported that U.S. retail sales rose 3.0% from the prior month in January, up from a 1.1% decline in December and above the Bloomberg consensus forecast of 2.0% growth. The results pointed to strength in the consumer economy, but also raised prospects for continued aggressive Fed rate hikes. The Dow fell 0.5%, the S&P 0.5%, and the Nasdaq 0.3%. Crude oil fell more than 1% to $78 per barrel, while gold fell $22 to $1843 per ounce.

Stocks surged on Thursday following positive inflation data, recording their strongest one-day advance since 2020. The Labor Department said that its consumer price index rose 7.7% from the prior year in October, down from 8.2% in September and below the consensus forecast of 7.9%. The core CPI, excluding food and energy, also rose at a lower-than-expected 6.3% rate. On the employment front, first-time claims for state unemployment benefits rose by 7,000 to 225,000 for the week ended November 5, slightly above the consensus forecast. Continuing claims rose to 1.493 million, also up from the prior week and above consensus. The Dow soared 3.70%, the S&P 5.54%, and the Nasdaq 7.35%. Crude oil rose slightly to $86 per barrel, while gold jumped $47 to $1760 per ounce.

Post Labor Day Tee Up: Fall and Three Key Dates

Since late June, Argus Research has launched coverage of five new companies. Although we initiated coverage of three of these companies with near-term HOLD ratings, they are all substantial players within their sectors and we want to keep an eye on them. The additions brought our fundamental Universe of Coverage to more than 500 leading U.S. and international companies. We cover stocks in all of the S&P 500 sectors - from Technology to Utilities and from Energy to Healthcare. Generally, we follow the Top 200 most-widely-held stocks, sourced from our sister company Vickers Stock Research (which collects institutional ownership data from the U.S. Securities and Exchange Commission). After that, we identify what we believe are the next 300 leading U.S. and international companies to round out our list. Our Universe of Coverage is dynamic and growing. We continually add stocks and often get ideas from our clients. Here are our most recent additions.

The volume of weekly insider transactions remains very low, which is to be expected as earnings season is in full swing and executives, directors, and beneficial owners are broadly prohibited from trading. But as was the case last week, the current data from Vickers Stock Research provides a clear picture of insider sentiment that remains balanced and seemingly optimistic.

Oshkosh is the top producer of access equipment, specialty vehicles, and military trucks. It serves diverse end markets, where it is typically the market share leader in North America, or, in the case of JLG aerial work platforms, a global leader. After winning the contract to make the Humvee replacement, the JLTV in 2015, Oshkosh became the largest supplier of light defense trucks to the U.S. military. The company reports four segments—access equipment (40% of revenue), defense (33%), fire & emergency (16%), commercial (11%)—and it generated $7.7 billion in revenue in 2021.