Confounding the Experts

Argus Research will host a webinar for clients at 11 a.m. ET on Wednesday, December 6, 2023. The webinar topic is Argus Investment Strategy: The Year Ahead. The webinar will be hosted by Argus Director of Research Jim Kelleher, CFA. Jim will be joined by Director of Economic Research Chris Graja, CFA, Senior Analyst Kevin Heal, and Argus President John Eade.

Weekly Tee Up: Back to Business

Earnings, Employment, Economy: Three Es Keeping Recession at Bay

Monday Tee Up: Big Earnings Week, Big Inflation Week

We'll take a wild guess that the S&P 500 (SPX) has never peaked on the first trading day of a new year and then moved lower for the rest of the year. In 2022, the index did close about 7% above its bear-market low from October (a month in which downtrends often end). The SPX lost 19.4% in 2022, with the Nasdaq and Nasdaq 100 giving up 33% as most Technology stocks (from small- to mega-cap) took the brunt of the losses. The Dow Industrials fared much better, falling 8.7%, while S&P 400 lost 13% and the Russell 2000 was down 20%.

Stocks were mostly higher on Thursday morning amid more signs of moderating inflation. The Labor Department said that its producer price index for final demand fell 0.5% in July, down from a 1.0% increase in June. The reading was the first negative number since April 2020 and below the Reuters consensus forecast, which called for an increase of 0.2%. The Dow rose 0.5%, the S&P rose 0.4%, and the Nasdaq was flat. Crude oil rose 1.5% to $93.50 per barrel, while gold rose $8 to $1806 per ounce.

Stocks fell sharply on Wednesday morning amid more earnings reports from major retailers. Target shares plunged 24% after the company reported much weaker than expected 1Q earnings and warned of further pressure from rising fuel and freight costs. Lowe's shares also fell, despite above-consensus earnings, as investors focused on the company's disappointing comps sales. The Dow fell 1.9%, the S&P 2.1%, and the Nasdaq 2.3%. Crude oil fell 1% to $111.50 per barrel, while gold fell $7 to $1812 per ounce.

The stock market kicked off February with a winning week, though 2022 remains deeply in the loss column. On Friday, the Dow Jones Industrial Average edged down by 21 points, or 0.06%. The S&P 500 was up 0.52%, and the Nasdaq Composite rose 1.58%. For the week, the DJIA was up 364 points, or 1.05%, the S&P 500 was up 1.55%, and the Nasdaq Composite was up 2.38%. Year-to-date, the Dow is down 3.44%; the S&P 500 is off 5.57%; and the Nasdaq Composite is on the edge of correction territory, down 9.89%.

With the Thanksgiving holiday last week, the total number of insider buy and sell orders across all exchanges predictably fell from the highs seen in prior weeks, with just under 1,350 transactions recorded. Still, volume remained well above the lows seen from late-September through early-November, when investors awaited the release of the third quarter results.

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.

Last week, stocks closed with a fresh set of all-time highs. Argus Director of Research Jim Kelleher, CFA, noted that 'saying 'all-time highs' has started to sound like a broken record.' Jim went on to detail why the relentless push higher is not necessarily a good thing. That disconnect matches current insider-trading data.

Stocks recouped some of their recent losses on Thursday as investors sought buying opportunities and looked past more signs of rising inflation. The Labor Department reported that its producer price index rose 0.6% in April, above the Bloomberg consensus forecast of 0.3%. Producer prices also rose 6.2% from the prior year, above the 5.8% consensus. Meanwhile, first-time jobless claims fell to 473,000, down from the prior week and below the consensus forecast of 490,000. Continuing claims also fell to 3.655 million, down from 3.7 million a week earlier. The Dow rose 1.29%, the S&P 1.22%, and the Nasdaq 0.72%. Crude oil fell more than 3% to $64 per barrel, while gold rose $4 to $1827 per ounce.

Stocks rose on Thursday amid better-than-expected economic data and earnings reports from a range of major companies. New coronavirus cases in the U.S. continued to decline, and congressional Democrats moved closer to passing the Biden administration's $1.9 trillion stimulus package, with or without Republican support. On the employment front, first-time unemployment benefit claims fell to 779,000 and continuing claims fell to 4.592 million, both down from the prior week and below consensus forecasts. The data came ahead of the government's January employment report on Friday morning. The Reuters consensus calls for the addition of 50,000 new payroll jobs after a decline of 140,000 in December. The Dow rose 1.08%, the S&P 1.09%, and the Nasdaq 1.23%. Crude oil rose to more than $56 per barrel, while gold dropped $42 to $1793 per ounce.

Our recent commentaries about insider sentiment, which have been based on proprietary sentiment measurements from Vickers Stock Research, have noted growing caution among corporate executives, directors and beneficial owners. We've discussed pent-up selling demand after earnings season, when insiders are broadly prohibited from trading; hedging in an environment that features a pandemic and extreme political developments in the U.S.; and insiders taking profits off the table (as they almost always do) when stock prices flirt with all-time highs.

With the economy recovering from a quick but massive downturn, a pending election that is being framed as one of the most important ever, another huge stimulus program waiting in the wings, and a new COVID-19 resurgence, one might expect the financial markets would be showing a lot more volatility. Even if we knew the headlines ahead of time or the S&P 500's earnings for the next five years, it would be hard to predict accurately what the stock market was going to do.

Stock Market Wobbles Toward the Election

Stock Market Wobbles Toward the Election

The recent 7% pullback in the S&P 500 did little to calm rampant stock-market excesses, and sentiment remains very bullish. Sooner or later, we may need something larger -- or at least targeted at everyone's favorite stocks (mostly from Technology). After the market close on Thursday, Apple, Amazon, Facebook and Alphabet all beat expertly managed expectations and soared after hours. So the Nasdaq and the QQQ's seem bound for more hysteria today.

The recent 7% pullback in the S&P 500 did little to calm rampant stock-market excesses, and sentiment remains very bullish. Sooner or later, we may need something larger -- or at least targeted at everyone's favorite stocks (mostly from Technology). After the market close on Thursday, Apple, Amazon, Facebook and Alphabet all beat expertly managed expectations and soared after hours. So the Nasdaq and the QQQ's seem bound for more hysteria today.

Despite Monday's market gains, many indices remain in short-term downtrends -- except the Nasdaq and Nasdaq 100 (QQQ). The S&P 500 rose 1.5% on Monday, with the Nasdaq up 1.2%, the S&P 400 MidCap gaining 2.4%, and the Russell 2000 (IWM) jumping 3.5%. While it was only one day, it was impressive given the negative headlines over the weekend.

Back to...New Beginnings?

Back to...New Beginnings?

Stocks rose modestly on Thursday after the Chinese government said that it would cut tariffs on $75 billion of U.S. imports, in line with the phase one trade deal signed last month. However, other reports suggested that China might invoke a disaster clause in the deal due to the coronavirus outbreak, potentially allowing it to cancel its commitment to purchase $200 billion of U.S. goods this year. On the employment front, the Labor Department said that first-time unemployment benefit claims fell by 15,000 to a seasonally adjusted 202,000 for the week ended February 1, below the Reuters consensus of 215,000. The data came ahead of the government's January employment report on Friday morning. The consensus calls for 160,000 new payroll jobs, up from 145,000 in December, and a steady unemployment rate of 3.5%. The Dow rose 0.30%, the S&P 0.33%, and the Nasdaq 0.67%. Crude oil rose to $51 per barrel, while gold rose $8 to $1570 per ounce.

Stocks rose modestly on Thursday after the Chinese government said that it would cut tariffs on $75 billion of U.S. imports, in line with the phase one trade deal signed last month. However, other reports suggested that China might invoke a disaster clause in the deal due to the coronavirus outbreak, potentially allowing it to cancel its commitment to purchase $200 billion of U.S. goods this year. On the employment front, the Labor Department said that first-time unemployment benefit claims fell by 15,000 to a seasonally adjusted 202,000 for the week ended February 1, below the Reuters consensus of 215,000. The data came ahead of the government's January employment report on Friday morning. The consensus calls for 160,000 new payroll jobs, up from 145,000 in December, and a steady unemployment rate of 3.5%. The Dow rose 0.30%, the S&P 0.33%, and the Nasdaq 0.67%. Crude oil rose to $51 per barrel, while gold rose $8 to $1570 per ounce.

Stock Market Wobbles Toward the Election

The recent 7% pullback in the S&P 500 did little to calm rampant stock-market excesses, and sentiment remains very bullish. Sooner or later, we may need something larger -- or at least targeted at everyone's favorite stocks (mostly from Technology). After the market close on Thursday, Apple, Amazon, Facebook and Alphabet all beat expertly managed expectations and soared after hours. So the Nasdaq and the QQQ's seem bound for more hysteria today.

Despite Monday's market gains, many indices remain in short-term downtrends -- except the Nasdaq and Nasdaq 100 (QQQ). The S&P 500 rose 1.5% on Monday, with the Nasdaq up 1.2%, the S&P 400 MidCap gaining 2.4%, and the Russell 2000 (IWM) jumping 3.5%. While it was only one day, it was impressive given the negative headlines over the weekend.

Back to...New Beginnings?

Stocks rose modestly on Thursday after the Chinese government said that it would cut tariffs on $75 billion of U.S. imports, in line with the phase one trade deal signed last month. However, other reports suggested that China might invoke a disaster clause in the deal due to the coronavirus outbreak, potentially allowing it to cancel its commitment to purchase $200 billion of U.S. goods this year. On the employment front, the Labor Department said that first-time unemployment benefit claims fell by 15,000 to a seasonally adjusted 202,000 for the week ended February 1, below the Reuters consensus of 215,000. The data came ahead of the government's January employment report on Friday morning. The consensus calls for 160,000 new payroll jobs, up from 145,000 in December, and a steady unemployment rate of 3.5%. The Dow rose 0.30%, the S&P 0.33%, and the Nasdaq 0.67%. Crude oil rose to $51 per barrel, while gold rose $8 to $1570 per ounce.

Aging Bull Ready to Complete Another Leg

Aging Bull Ready to Complete Another Leg

The major indices got clocked for a second day, with the S&P 500 off 1.8%, the Nasdaq down 1.6%, and the Nasdaq 100 (NDX) lower by 1.7%. All three are quickly approaching critical intermediate-term support from the August lows as well as their 200-day averages. As we have talked about recently, the "former" leaders (high-beta/risk-on stocks) continue to get hammered -- which is not a confidence-building sign for an interim bottom.

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.

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.

Most investors didn't foresee the double-whammy of an interest-rate disappointment (more rate cuts are not a sure thing??) and a suddenly renewed tariff battle. It's safe to say that, in this case, corporate executives, directors and beneficial owners were no different. So while insider sentiment has offered no warnings signals for weeks now, equity markets nonetheless are suffering mightily. But insiders play the long game, so we won't spend much time wondering how they may react in the very short-term in response to unexpected events. Rather, we'll keep an eye on the bigger picture - looking for any broad changes in the trading behavior of insiders as earnings season draws to a close and insiders are again free to trade at will.

Most investors didn't foresee the double-whammy of an interest-rate disappointment (more rate cuts are not a sure thing??) and a suddenly renewed tariff battle. It's safe to say that, in this case, corporate executives, directors and beneficial owners were no different. So while insider sentiment has offered no warnings signals for weeks now, equity markets nonetheless are suffering mightily. But insiders play the long game, so we won't spend much time wondering how they may react in the very short-term in response to unexpected events. Rather, we'll keep an eye on the bigger picture - looking for any broad changes in the trading behavior of insiders as earnings season draws to a close and insiders are again free to trade at will.

The major indices are up strongly at midday on Tuesday in a rebound from yesterday's heavy selling. Amazon and Walmart are in the news after each company announced competing initiatives regarding next-day delivery of consumer products. Uber stock seems to have stabilized this morning after heavy selling in its first two days on the market. Industries doing well today include Energy Equipment & Services, Life Science Tools & Services, and IT Services. Industries showing weakness include Multiline Retail, Gas Utilities, and Interactive Media & Services. The VIX is down 1.95 to 18.60 after the previous close of 20.55. The Dow rose 1.3%, the S&P 1.3%, and the Nasdaq 1.5%. Crude oil rose 1.5% to about $62 per barrel, while gold fell $6 to $1296 per ounce.

The major indices are up strongly at midday on Tuesday in a rebound from yesterday's heavy selling. Amazon and Walmart are in the news after each company announced competing initiatives regarding next-day delivery of consumer products. Uber stock seems to have stabilized this morning after heavy selling in its first two days on the market. Industries doing well today include Energy Equipment & Services, Life Science Tools & Services, and IT Services. Industries showing weakness include Multiline Retail, Gas Utilities, and Interactive Media & Services. The VIX is down 1.95 to 18.60 after the previous close of 20.55. The Dow rose 1.3%, the S&P 1.3%, and the Nasdaq 1.5%. Crude oil rose 1.5% to about $62 per barrel, while gold fell $6 to $1296 per ounce.

The analysis of insider trading has a few givens, and those givens can be contrarian. It's rarely bearish when insiders sell more than they buy (after all, much of the stock they own came their way at a very favorable price). Insiders also tend to buy a lot when everyone else is selling a lot (and look out below if they don't). And finally, insiders often buy noticeably less when everyone else is buying noticeably more (and feel very good about your 401k if they keep buying). But even in a world of contrarian behavior, events can occur that lead us to worry things are getting just a tad too contrarian. Indeed, a sizable change in insider attitudes may be taking hold.

The analysis of insider trading has a few givens, and those givens can be contrarian. It's rarely bearish when insiders sell more than they buy (after all, much of the stock they own came their way at a very favorable price). Insiders also tend to buy a lot when everyone else is selling a lot (and look out below if they don't). And finally, insiders often buy noticeably less when everyone else is buying noticeably more (and feel very good about your 401k if they keep buying). But even in a world of contrarian behavior, events can occur that lead us to worry things are getting just a tad too contrarian. Indeed, a sizable change in insider attitudes may be taking hold.

The analysis of insider trading has a few givens, and those givens can be contrarian. It's rarely bearish when insiders sell more than they buy (after all, much of the stock they own came their way at a very favorable price). Insiders also tend to buy a lot when everyone else is selling a lot (and look out below if they don't). And finally, insiders often buy noticeably less when everyone else is buying noticeably more (and feel very good about your 401k if they keep buying). But even in a world of contrarian behavior, events can occur that lead us to worry things are getting just a tad too contrarian. Indeed, a sizable change in insider attitudes may be taking hold.

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.

Mid-cap stocks have sprinted out of the starting gate in 2019, gaining 11% year to date compared to the S&P 500's increase of 8%. Although large-caps have outperformed over the past 12 months, 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 brewing trade wars. For another, the long-term record favors small-caps over large-caps. Since 2003, the Russell 2000 Index has climbed 300%, compared to an advance of 217% for the S&P 500. This week's list includes stocks with market caps below $10 million that are on the Argus BUY list and are included in our Mid-Cap Model Portfolio.

Mid-cap stocks have sprinted out of the starting gate in 2019, gaining 11% year to date compared to the S&P 500's increase of 8%. Although large-caps have outperformed over the past 12 months, 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 brewing trade wars. For another, the long-term record favors small-caps over large-caps. Since 2003, the Russell 2000 Index has climbed 300%, compared to an advance of 217% for the S&P 500. This week's list includes stocks with market caps below $10 million that are on the Argus BUY list and are included in our Mid-Cap Model Portfolio.

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.

As was the case when the S&P 500 traded between 2,600 and 2,815 not long ago, we are likely in another "air pocket." The index could trade up to 2,600+, as there was little chart resistance until that breakdown point. But it could also then head down to test the recent low of 2,347.

As was the case when the S&P 500 traded between 2,600 and 2,815 not long ago, we are likely in another "air pocket." The index could trade up to 2,600+, as there was little chart resistance until that breakdown point. But it could also then head down to test the recent low of 2,347.

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.

Most investors didn't foresee the double-whammy of an interest-rate disappointment (more rate cuts are not a sure thing??) and a suddenly renewed tariff battle. It's safe to say that, in this case, corporate executives, directors and beneficial owners were no different. So while insider sentiment has offered no warnings signals for weeks now, equity markets nonetheless are suffering mightily. But insiders play the long game, so we won't spend much time wondering how they may react in the very short-term in response to unexpected events. Rather, we'll keep an eye on the bigger picture - looking for any broad changes in the trading behavior of insiders as earnings season draws to a close and insiders are again free to trade at will.

The major indices are up strongly at midday on Tuesday in a rebound from yesterday's heavy selling. Amazon and Walmart are in the news after each company announced competing initiatives regarding next-day delivery of consumer products. Uber stock seems to have stabilized this morning after heavy selling in its first two days on the market. Industries doing well today include Energy Equipment & Services, Life Science Tools & Services, and IT Services. Industries showing weakness include Multiline Retail, Gas Utilities, and Interactive Media & Services. The VIX is down 1.95 to 18.60 after the previous close of 20.55. The Dow rose 1.3%, the S&P 1.3%, and the Nasdaq 1.5%. Crude oil rose 1.5% to about $62 per barrel, while gold fell $6 to $1296 per ounce.

The analysis of insider trading has a few givens, and those givens can be contrarian. It's rarely bearish when insiders sell more than they buy (after all, much of the stock they own came their way at a very favorable price). Insiders also tend to buy a lot when everyone else is selling a lot (and look out below if they don't). And finally, insiders often buy noticeably less when everyone else is buying noticeably more (and feel very good about your 401k if they keep buying). But even in a world of contrarian behavior, events can occur that lead us to worry things are getting just a tad too contrarian. Indeed, a sizable change in insider attitudes may be taking hold.

Stocks fell on Thursday morning, led by declines in the Technology and Financial sectors, following Wednesday's strong Fed-driven rally. The Commerce Department reported that U.S. consumer spending rose 0.6% in October, up from a revised 0.2% in September and above the Reuters consensus forecast of 0.4% growth. The Dow fell 0.4%, the S&P 0.3%, and the Nasdaq 0.4%. Crude oil rose nearly 3% to about $52 per barrel, while gold traded near $1232 per ounce.

Stocks fell on Thursday morning, led by declines in the Technology and Financial sectors, following Wednesday's strong Fed-driven rally. The Commerce Department reported that U.S. consumer spending rose 0.6% in October, up from a revised 0.2% in September and above the Reuters consensus forecast of 0.4% growth. The Dow fell 0.4%, the S&P 0.3%, and the Nasdaq 0.4%. Crude oil rose nearly 3% to about $52 per barrel, while gold traded near $1232 per ounce.

Aging Bull Ready to Complete Another Leg

The major indices got clocked for a second day, with the S&P 500 off 1.8%, the Nasdaq down 1.6%, and the Nasdaq 100 (NDX) lower by 1.7%. All three are quickly approaching critical intermediate-term support from the August lows as well as their 200-day averages. As we have talked about recently, the "former" leaders (high-beta/risk-on stocks) continue to get hammered -- which is not a confidence-building sign for an interim bottom.

Stocks fell on Thursday morning, led by declines in the Technology and Financial sectors, following Wednesday's strong Fed-driven rally. The Commerce Department reported that U.S. consumer spending rose 0.6% in October, up from a revised 0.2% in September and above the Reuters consensus forecast of 0.4% growth. The Dow fell 0.4%, the S&P 0.3%, and the Nasdaq 0.4%. Crude oil rose nearly 3% to about $52 per barrel, while gold traded near $1232 per ounce.