“Recent economic data suggest that, before the government shutdown, economic growth had lost a bit of momentum. The partial shutdown of the U.S. government since the beginning of October took even more wind out of the current quarter’s sails. Assuming the shutdown lasts through mid-October, we now expect real GDP to grow at about a +2% pace over the second half of 2013.”
Given strong October jobs data and +2.8% Q3 growth, they may be proved wrong.
It is a Full-Year 2014 Earnings World Now
At 15 times the forward consensus on earnings estimates, stocks look fairly valued. Consider the average stock market P/E is 15 to 16. Apply 15 to $118 per share optimists expect for the S&P 500 in 2014. That computes to fair value at 1770. Stocks are pricing near that level now. December is on its way.
If you say those earnings projections are too high, trim back to a conservative $109 per share for 2013. That gives the S&P 500 a fair value of 1635, seen as a very low number now. This number’s arrival would reflect deep pessimism on ongoing Federal budget negotiations, or a non-U.S. blow-up.
Raging bulls use a $121 number for 2014. They say 1815 is fair value now.
Zacks Sector/Industry/Company Telescope for November
Losers became winners and vice versa in October. What happened? The shutdown ended, and QE flattened the 10-year to 2.5%. China showed up stronger. The U.S. consumer is well. Housing is not there at the moment.
- Consumer Discretionary continues to be the Most Attractive sector. Winning industries are Leisure, Autos, Consumer Electronics and Apparel in that order. Home Furnishing-Appliance industry is at the bottom now.
Company to Check Out: Ford Motor Company (F) is a Zacks Rank #1 stock.
- Consumer Staples gets an upgrade. Misc-Staples and Soap & Cosmetics are Very Attractive. Strength is luxury. Agri-business remained in the dumps at Very Unattractive. Everything else is more or less Market.
Company to Check Out: Reckitt Benckiser (RBGLY). This company engages in manufacturing and distributing household, toiletry, pharma and food products. It is based in the United Kingdom.
- Materials got the big upgrade. It goes from Very Unattractive to Very Attractive. The influence of China is heavily felt. Chemicals, Paper, Steel and non-Ferrous Metals are all Attractive now.
Company to Check Out: Vale SA (VALE). This company is engaged in the mining of iron ore and pellets, nickel, manganese and ferro-alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum and potash. It is based in Rio de Janeiro, Brazil.
- Telcos get an upgrade to Attractive. Telco Services is Attractive.
- In Health Care, another reversal of fortune. The Drugs industry goes to Very Attractive. Medical Products and Medical Care Industries sink to Market now. Implementing Obamacare looks to be in the rear view mirror.
- For Finance, also a change of leaders and losers. The winner is Finance with its emphasis on the consumer. Investment Banking & Brokering come up pretty well too. Insurance remains strong. But Banks & Thrifts, Major Banks, Real Estate and Investment Funds get a downgrade.
- Industrials have three winners, four fence sitters and four losers. If you want to go long here, look into Aerospace & Defense, Business Products, and Business Services. Stay away from Machinery at the moment.
- Info Tech is another place of shifting sands. Semiconductors sink back to Market Weight. Consumer Electronics, Telco Equipment and Misc. Tech gets an upgrade. The story is all about mobile, but the winners are changing.
- Energy is a solid Market Weight at best. The only attractive industry is Oil Drilling, as North American Bakken production continues to ramp up.
- Utilities also got an upgrade. Look at the Gas Distributors this winter.