The cold hard message is sinking in. Higher rates are here to stay for longer than expected. Federal Reserve Chairman Jerome Powell has said multiple times that the Fed will be 'data-driven' when deciding on monetary policy. And the data has spoken. First, let's look at inflation. There has been great progress made in knocking inflation down from its peak of 9.1% in June of 2022. But achieving progress at the current lower levels, with inflation in the low-3% range, as expected, has been difficult. The Fed has been specific, saying inflation needs to be at 2% before restrictive policy will be eased. The Fed was patient after the January inflation data, and again with February data. But when March showed persistently higher prices, the Fed threw came right out and said that change can wait. Chairman Powell said the following last week. "The recent data have clearly not given us greater confidence..." and "If higher inflation does persist, we can maintain the current level of restriction for as long as needed." Now let's consider unemployment. The Fed again has been specific. Officials are looking for a 4.1% unemployment rate to gently (hopefully) slow the economy. Currently, the rate is not budging and is vacillating between 3.8% and 3.9%. Given the current macroeconomic backdrop, the following is a list of industries and companies we like that should benefit from a sustained period of higher interest rates. All are BUY-rated at Argus.

Stocks were mixed on Tuesday morning as investors digested earning reports. Starts of residential units fell to a seasonally adjusted annual rate of 1,321,000 in March, a 14.7% decline from February's revised rate and well short of expectations. Building permits issued also slipped to an annualized 1,458,000, a 4.3% decline from February and also short of expectations. Housing starts declined in all regions with the exception of the West, which rose 7.1%. Building permits issued were flat for units of five or more homes per building, while declining 10.3% for buildings of two to four units, and 5.7% for single-family homes. Regionally, permits issued fell in the Northeast (-20.8%), Midwest (-14.7%), and South (-0.6%), while growing in the West (+5.1%). The Dow was up 0.4%, while the S&P 500 was flat and the Nasdaq rose 0.1%. Crude oil is trading near above $85 per barrel and gold rose $22 to $2405 per ounce.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Weekly Tee Up: Bank Earnings and Housing

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

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.

Stocks fell on Tuesday morning as strong retail sales data again raised the likelihood of a Fed rate hike in December. The Commerce Department said that U.S. retail sales rose 0.7% from the prior month in September, down slightly from 0.8% in August but well above the Reuters consensus forecast of 0.3% growth. Core retail sales, excluding automobiles, gasoline, building materials, and food services, rose 0.6%, up from 0.2% in August. Manufacturing data for September was also stronger than expected. The Federal Reserve said that U.S. manufacturing output rose 0.4% last month, above the consensus of 0.1% growth. On the earnings front, Bank of America posted 10% profit growth in 3Q, helped by higher net interest income, while Goldman Sachs reported a sharp decline in earnings, hurt by write-downs in its consumer lending and real estate businesses. The Dow fell 0.1%, the S&P 0.2%, and the Nasdaq 0.4%. Crude oil rose to $87 per barrel, while gold traded near $1940 per ounce.

The country's biggest banks kick off earnings season this week. For sure, this sector has suffered this year following the failure of Silicon Valley Bank and the downward spiral that followed. The KRE (S&P Regional Bank Index) is down 29% year-to-date versus a rise of 12% for the S&P 500. We see opportunity here and have an Over-Weight rating on the sector. We believe the worst is over after the March/April bank failures and that the risk associated with these failures has been factored into share-price valuations. In the earnings reports that start flowing on Friday, we'll be focused on updates in the following areas: loan growth, where we expect growth to have slowed to low single-digits as higher interest rates weigh on consumers and businesses; loan loss provisions, where we see the gauge moving higher as net charge-offs trend toward normal; commercial real estate, where higher interest rates and new post-pandemic social, work, and shopping behaviors magnify the exposure of banks to commercial real estate, and; investment banking, where we are starting to see recovery in M&A and IPO activity. Yes, banks have challenges. Overall, we feel the banks are on solid footing and that valuations at current levels are attractive. Here's a list of our favored banks, broken down by niche.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

August has been rough for stocks. The markets are down from their highs, although the year overall has been upbeat for stocks -- especially compared to a dismal 2022. The continued stress on the economy from higher interest rates, and questions about whether the Federal Reserve is done raising them, have weighed on valuations. Most economists are not convinced that the recession question has been answered. While there are strengths in the economy -- like the labor market and consumer spending -- inflation indicators inched up last month. The uncertain environment has impacted small-caps, mid-caps, large-caps, and even mega-caps. There is a wide range in data that shows how sectors are weathering this climate, with Communication Services up nearly 40% year-to-date but Consumer Staples down 2% for the same time period. In our opinion, some solid companies with strong financials have been oversold. For our list this week, we identified 10 BUY-rated large- or mega-cap companies across numerous industries that are selling at attractive valuations (more than 20% below their 52-week highs). They are listed according to company size, with the largest first.

Each month we take a close look at an aspect of sector investing. This month, we are examining growth and valuation. Investors hunting for stocks that reasonably balance long-term growth prospects and current value characteristics might want to look at companies in the Financial Services, Technology and Industrial sectors. These are among the industry groups that currently are selling for PEGY ratios (price/earnings)/(growth+yield) at or below the S&P 500's ratio of 2.2. To generate the PEGY ratios, we use the P/E ratio for each sector based on forward earnings for the numerator. For the denominator, we average the growth rates for the past five years along with two years of forward estimates, this in order to achieve a smoother, less-volatile, earnings growth rate trend. We then add the current yield in order to approximate total return. As an example, the current S&P 500 P/E ratio is 19, the current yield is 1.6%, and the forecast five-year growth rate is 7.0%. The formula is 19/(1.6+7.0), which equals 2.2. Premium-valued sectors with low growth rates include Consumer Staples and Utilities. Based on our analysis of growth rates and valuations, along with other factors, we have established current over-weight sectors as Technology, Financial, Consumer Discretionary, and Basic Materials. Our under-weight sectors are Energy and Consumer Staples. Our Market-Weight sectors are Healthcare, Communication Services, Utilities, Real Estate, and Industrials.

Stocks were mixed on Tuesday morning following earnings from Bank of America and Morgan Stanley and new retail sales data. Bank of America shares rose 4% after the company reported strong 2Q earnings, helped by growth in net interest income. Morgan Stanley shares also rose, despite lower second-quarter earnings, after management projected generally stronger results in the second half of the year and in 2024. Retail sales were weaker than expected. The Commerce Department said that U.S. retail sales rose 0.2% in June, down from a revised 0.5% in May and below the Reuters consensus forecast of 0.5% growth. The Dow rose 0.8%, the S&P rose 0.2%, and the Nasdaq fell 0.2%. Crude oil traded near $75 per barrel, while gold jumped $28 to $1984 per ounce.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Dividend income is often overlooked amid gyrations in the stock market. Thus far in 2023, market bulls are boasting about first-half S&P 500 returns that may top 15%. No one is very focused on the broad market index's 1.6% current yield. But dividends are an important element of return. Dividend income accounted for 42% of the total return of the S&P 500 between 1930 and 2012, according to Hartford Funds. And that's just the average. In some of those decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for a smaller portion of returns, at around 15%-20%. In 2018, dividend payments softened the blow when most market indices declined as the Fed hiked rates. The pattern was repeated in 2022. 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.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Each month, we take a close look at an aspect of sector investing. This month, we are examining growth and valuation. Investors hunting for stocks that reasonably balance long-term growth prospects and current value characteristics might want to look at companies in the Financial Services, Information Technology, and Industrial sectors. These are among the industry groups that are selling for PEGY ratios -- (price/earnings)/(growth+yield) -- that are at or below the S&P 500's ratio of 2.4. To generate PEGY ratios, we use the P/E ratio for each sector based on forward earnings for the numerator. For the denominator, we average the growth rates for the past five years along with two years of forward estimates, this in order to achieve a smoother and less-volatile earnings growth rate trend. Then, we add the current yield to approximate total return. As an example, the current S&P 500 P/E ratio is 19, the current yield is 1.6%, and the forecast five-year growth rate is 5.9%. The formula is 19/(1.9+5.9) = 2.4. Premium-valued sectors with low growth rates include the Consumer Staples and Utilities industries. Based on our analysis of growth rates and valuations, along with other factors, we have established our current Over-Weight sectors as Information Technology, Financial, Industrial, and Materials. Our Under-Weight sectors are Communication Services and Consumer Staples. Our Market-Weight sectors include Healthcare, Consumer Discretionary, Utilities, Real Estate, and Energy.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Innovation may be hard to define. But to borrow from former U.S. Supreme Court Justice Potter Stewart, you know it when you see it. The United States economy is full of innovation. It has to be. Manufacturing industries that dominated the economy decades ago - textiles, televisions, even automobiles to a large degree - have moved overseas, where labor and materials costs are lower. Yet the U.S. economy, even during the pandemic and the current period of high inflation, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines) and services (such as Zoom calls) and moving into new markets and applications, the domestic economy would not be growing, and capital would not be flooding into the country. The current high level of the U.S. dollar relative to currencies around the world attests to the confidence that global investors have in the durable and innovative U.S. economy.

Stocks fell on Tuesday morning following more earnings reports from major banks. Bank of America posted strong 1Q revenue and earnings that topped consensus forecasts, while Goldman Sachs reported sharply lower earnings, hurt by weakness in investment banking and lower advisory fees. Elsewhere, Lockheed Martin rose after reporting above-consensus earnings, while Johnson & Johnson shares fell despite strong first-quarter results and higher full-year earnings guidance. The Dow fell 0.4%, the S&P 0.2%, and the Nasdaq 0.1%. Crude oil traded near $81 per barrel, while gold rose $14 to $2021 per ounce.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

California-based SVB Financial Group was taken over by regulators last Friday due to inadequate liquidity and insolvency; SIVB equity shareholders have been wiped out. The collapse has reverberated on Wall Street in a sharp downturn in bank stocks as investors worry about a contagion impact on the banking industry. We believe the reaction has been overblown. Silicon Valley Bank was a special situation in two ways. First, deposits at the bank accounted for about 90% of funding, versus 65% for the average bank, leaving the bank susceptible to funding shortfalls from a relatively small base of depositors. As well, the bank was deeply concentrated in holding deposits for technology start-ups, which have been unable to access the capital markets due to a downturn in capital raising and were thus funding operations by draining their deposits from prior fund raisings. While depositors with more than the FDIC cap of $250,000 will face uncertain timing on recovery of funds, we view deposits as a zero sum game. Funds pulled from one bank will be allocated to another. Banks routinely face interest-rate cycles and hold a large amount of fixed-income assets, sometimes at gains, other times at losses. But default risk is really non-existent and gains/losses are zero if held to maturity. SVB's issue was having received a large amount of deposits and having invested them when rates were very low, and then being asked for those deposits back after rates moved considerably higher -- leaving it with short-term losses. Larger banks have far better distribution among funding sources (such as a greater number of depositors and short-term borrowings). Larger banks also are subject to stringent stress tests on a range of severe economic scenarios and have abundant capital requirements. Smaller banks with large exposure to single sectors may be at risk, so we would focus on larger banks in this risk-off environment. Here is a list of BUY-rated Financial sector stocks in Argus' universe of coverage that fell sharply last week and offer value, in our opinion.

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.

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.

Stocks were mixed on Friday morning after big banks reported. Tesla stock was down when it announced that it was cutting prices on some of its models. According to the University of Michigan, consumer sentiment rose to 64.6 in January from a revised 59.7 in December. However, this is still well below prepandemic numbers The Nasdaq is down 0.27%, the S&P 0.22%, while the Dow Jones is up 0.17%. Crude oil rose to $79 per barrel, while gold rose $16 to $1914 per ounce.

Dividend income, an important element of total return, is often overlooked amid gyrations in the stock market. Between 1930 and 2012, dividend income accounted for 42% of the 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. The pattern was repeated in 2022 as well. 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.

Both the potential onset of recession (if the economy is not in one already) and the sharp move higher in interest rates have pulled the foundation out from under the equity market in 2022. Few sectors have been spared, with only the Energy industry in the green on a year-to-date basis. The broad retrenchment has dragged down small-caps, mid-caps, large-caps, and even the mega-caps that had previously pushed stocks to new heights as the economy recovered from the pandemic. In our opinion, some of these world-class companies have been oversold. For our list this week, we have identified 11 BUY-rated large- or mega-cap companies across numerous industries that are selling at attractive valuations and are more than 20% below their 52-week highs.

Innovation may be hard to define. But to borrow from former U.S. Supreme Court Justice Potter Stewart, you know it when you see it. The United States economy is full of innovation. It has to be. Manufacturing industries that dominated the economy decades ago - textiles, televisions, even automobiles to a large degree - have moved overseas, where labor and materials costs are lower. Yet the U.S. economy, even during the pandemic and the current period of high inflation, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines) and services (such as Zoom calls) and moving into new markets and applications, the domestic economy would not be growing, and capital would not be flooding into the country. The current high level of the U.S. dollar relative to currencies around the world attests to the confidence that global investors have in the innovative U.S. economy.

Stocks rallied on Monday morning, reversing course once again after sharp losses on Friday. Bank of America shares rose nearly 5% after the company posted better-than-expected third-quarter results, helped by strong growth in net interest income. In China, the National Bureau of Statistics surprised investors by delaying the release of its 3Q GDP report, along with retail sales and industrial production data for September. The Dow rose 1.6%, the S&P 2.4%, and the Nasdaq 2.9%. Crude oil traded near $86 per barrel, while gold rose $20 to $1669 per ounce.

All of the major indices (the S&P 500, the Nasdaq, the Nasdaq 100 (QQQ), the NYSE, the Dow Industrials, the S&P MidCap 400, and the Russell 2000) completed bullish ABC reversals last week. Chart formations during market bottoms tend to be similar and generally occur at the same time. The exact opposite occurs at market tops.

The major indices have come a long way off their June lows, likely further than most expected. Where they stop, nobody knows. Many bears are throwing in their towels quicker than children lose their attention when doing homework. So far, every piece of resistance (until Tuesday) has been sliced through like a laser through metal.

Stocks rallied on Monday morning at the start of a big week for second-quarter earnings. Goldman Sachs rose nearly 3% after posting better-than-expected EPS and raising its dividend, while Bank of America rose modestly after mixed results. Housing market data was weak. The National Association of Home|Builders said that its housing market index fell to 55 in July from 67 in June. The reading missed the Reuters consensus of 65 and was the lowest since May 2020. The Dow rose 0.5%, the S&P 0.6%, and the Nasdaq 1.4%. Crude oil rose $4 to $102 per barrel, while gold traded near $1710 per ounce.

Stocks swung between gains and losses on Monday morning as investors awaited earnings from a range of major companies. Bank of America rose more than 3% after posting stronger-than-expected first-quarter earnings, helped by growth in consumer lending. However, earnings were still down 13% from the prior year. The Dow fell 0.2%, the S&P 0.2%, and the Nasdaq 0.4%. Crude oil rose 1% to $108 per barrel, while gold traded near $1991 per ounce.

Our rating on the Financial Services sector is Over-Weight. Based on positive vaccine developments and actions from the administration in Washington, interest rates have started to move higher at the long end of the yield curve. We expect banks to benefit from wider net interest margins and lower loan-loss provisions as the economy normalizes. We also expect insurance companies to generate higher income in their investment portfolios. The sector accounts for 10.7% of the S&P 500, down from 16.3% following the exclusion of Real Estate stocks. Over the past five years, the weighting has ranged from 9% to 17%. We think the sector should account for 11%-12% of diversified portfolios. Here is how we use our analysts' Financial Services sector ideas in our Focus List and Model Portfolios. All of the following stocks currently are rated BUY at Argus.

Year-End 2021 Review and Outlook for 2022

Stocks rose on the first trading day of January, but since then have endured an as-predicted bumpy ride. The DJIA has fared the best, down just 0.29% in the first trading week of 2022. The S&P 500 is now down 1.87% year-to-date. The Nasdaq has fared the worst, down 4.53% in the first trading week of the new year.

We have an Over-Weight rating on the Financial Services sector, which accounts for approximately 12% of the S&P 500.Within Financial Services, the bank & brokerage industries account for about half of the market cap. The banking industry is unique, compared to the business models of Industrial, Technology, Healthcare or Consumer companies. “Revenues” for banks generally include net interest income and noninterest (or fee) income, such as service charges, credit card fees, and wealth management fees. “Costs” for banks include noninterest expenses such as salaries, marketing, technology, and credit cost (in the form of a loan loss provision). Numerous factors influence bank profits, including jobs growth and consumer confidence, the yield curve, credit costs, the IPO environment, and regulatory activity. When valuing bank stocks, analysts focus on P/E ratios, price/book ratios, ROA, and ROE. All else being equal, investors grant premium valuations to banks that perform well consistently, relative to other banks, on ROE, ROA, efficiency ratios, loan growth credit quality, dividend growth, and yield. Here are five banks on the Argus BUY list that meet most of these criteria.

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.

Stocks rose strongly on Thursday as investors focused on solid earnings from major banks and lower-than-expected weekly unemployment claims. First-time claims fell to 293,000, down from the prior week and below consensus. Continuing claims dropped to 2.593 million from 2.727 million a week earlier, and were also below the consensus forecast. Inflation data was mixed. The Labor Department said that its producer price index for final demand rose 0.5% in September, down from 0.7% in August and below the consensus forecast of 0.6% growth. However, producer prices were still up 8.6% from the prior year, up from 8.3% in August. The Dow rose 1.56%, the S&P 1.71%, and the Nasdaq 1.73%. Crude oil rose to $81.50 per barrel, while gold rose $4 to $1798 per ounce.

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.