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Stocks fell sharply on Tuesday morning, led by declines in regional bank stocks. Treasury Secretary Janet Yellen warned that the U.S. government could run out of funding by June 1, earlier than previously expected, if Congress fails to raise the debt ceiling. Employment data pointed to a cooling labor market. In its monthly JOLTS survey, the Labor Department said that U.S. job openings dropped to 9.59 million on the last day of March, below the Reuters consensus forecast of 9.78 million and the third straight monthly decline. The Dow fell 1.6%, the S&P 1.6%, and the Nasdaq 1.4%. Crude oil traded near $72 per barrel, while gold jumped $26 to $2018 per ounce.
For our list this week, we are focusing on the Healthcare Sector, which we rank as one of our favorites with an Over-Weight rating. Healthcare was an outperformer in 2022, falling only 4% while the S&P 500 dropped 19%, but has lagged in the early weeks of 2023. We think the recent relative weakness may offer a buying opportunity. Post-COVID, consumers are more willing to spend on lifestyle enhancements along with necessary spending on life-saving treatments. In addition, the survival of the Affordable Care Act has kept the ranks of insured U.S. citizens above the historical average, further increasing consumer spending on healthcare services and products. Meanwhile, companies with experience in diagnostic testing, vaccines, and antiviral medicines, as well as suppliers of protective equipment and other hospital products, have benefited from efforts to contain the pandemic. The sector accounts for 14.7% of the S&P 500, and includes companies in the pharmaceuticals, medical devices, healthcare services, and insurance industries. Here's our list of Argus BUY-rated Healthcare stocks that are large-cap and have solid books. We sorted by the largest percentage from the 52-week high.
Monday Tee Up: Data Hat Trick Includes the Fed, Jobs, and Earnings
Rapidly rising inflation 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. As well, those fixed-income returns are from eras when the 10-year Treasury bond yield was much higher than the current 3.5% level. So what's a potential equity strategy for investors amid all the uncertainty? Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate.
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.
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.
Last week was the busiest of the quarter for corporate earnings, with a fair number of sharp moves in stock prices following above- or below-consensus results or changes in company guidance. Through October 25, Refinitiv reports that 129 S&P 500 companies have announced earnings, with 74% of those coming in ahead of the EPS consensus. The blended (reported and estimated) growth rate for the full quarter, however, is now at 3.3%. That's down from the 4.5% that was expected at the start of the quarter, which is likely a combination of the magnitude of the earnings misses as well as earnings estimates still coming down for those still scheduled to report. Sectors with the strongest beat rates so far have been Healthcare and Communication Services, where 100% of companies reporting have come in ahead of consensus. The biggest laggard has been Consumer Discretionary, where only 47% have exceeded consensus. Energy dominates, with a 119% blended earnings growth rate versus 3Q21, while Financials are at the other end with a 16% earnings decline. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst to strong returns in the quarters ahead. Here is an initial list of BUY-rated companies in Argus coverage for which management has raised guidance or increased its outlook during the 3Q22 EPS reporting season.
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.
Earnings Bend but Don't Break as Economy Muddles On
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 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 Research.
The dollar is up 8% year-to-date and back at cycle highs. The greenback spiked early in the pandemic as global investors flocked to the security of assets denominated in U.S. currency. Indeed, the dollar in 2020 surpassed cycle highs set initially in 2001-2002 and then again in late 2016. But after peaking in April 2020, the greenback declined into 2021. And now in 2022 -- in the wake of the Russian invasion of Ukraine, spiking inflation, and rising global interest rates -- has surpassed cycle highs. Currently, on a real trade-weighted basis, the dollar is 20% above the average valuation over the past 20 years. The fully valued U.S. currency reflects several factors, but primarily the relative strength of the U.S. economy and global investor confidence in the U.S. as the world economy recovers from COVID-19 and battles high prices. We anticipate a trading range around current levels for the greenback for the balance of this year. That's because we think U.S. GDP will start to cool as the Fed has lifted the federal funds rate to tame inflation. What's more, with Treasury prices likely headed lower as the Fed addresses inflation, investors may be selling T-bills and bonds. Lastly, the lofty current valuation of the greenback implies that other currencies -- even gold or other commodities -- are possibly undervalued, and we would expect traders to bid up those values over time.
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 Quanta Services, Inc. (PWR); Danaher Corp. (DHR); Expedia Group Inc (EXPE); EOG Resources, Inc. (EOG) and the Focus List deletions are Enbridge Inc (ENB); CVS Health Corp (CVS); Emerson Electric Co. (EMR); McDonald`s Corp (MCD).
Monday Tee-Up: No Summer Doldrums on Wall Street
Rapidly rising inflation in 2022 has knocked the stock market into a bear market. While growth strategies have suffered the most, value strategies also have declined. Even year-to-date bond prices are lower. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. As well, those returns are from eras when the 10-year Treasury bond yield was much higher than the current 3.0% level. So what's a potential equity strategy for investors amid all the uncertainty? Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate. Academic literature and, more to the point, returns history, indicate that Min Vol can deliver market-matching returns on an absolute basis and superior returns on a risk-adjusted basis over various time periods.
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 is being 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.
Stocks fell sharply on Friday morning, reversing much of Thursday's rally. Amazon shares dropped more than 12% after the company posted a first-quarter loss and issued disappointing guidance for the current quarter. Apple shares also fell, despite strong fiscal 2Q results, after the company warned that supply-chain constraints would weigh on revenue in 3Q. The Dow fell 1.2%, the S&P 1.8%, and the Nasdaq 2.1%. Crude oil rose to $108 per barrel, while gold traded near $1915 per ounce.
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 costs are lower. Yet the U.S. economy, even during the pandemic, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines) and services and moving into new markets and applications, the domestic economy would not be growing, and capital would not be flooding into the country. Consider that U.S. GDP was approximately $1 trillion in 1930 but was more than $24 trillion at the end of 2021. That's growth of 24-times. Meanwhile, the U.S. population has grown less than three-times during that time span, to 320 million from 120 million. The delta between GDP growth and population growth has been driven, in large part, by innovation.
Our rating on the Healthcare sector is Over-Weight. Consumers are now more willing to spend on lifestyle enhancements along with necessary spending on life-saving treatments. In addition, the survival of the Affordable Care Act has kept the ranks of insured U.S. citizens above the historical average, further increasing consumer spending on healthcare services and products. Meanwhile, companies with experience in diagnostic testing, vaccines, and antiviral medicines, as well as suppliers of protective equipment and other hospital products, should benefit from efforts to contain the pandemic. The sector accounts for 13.7% of the S&P 500, and includes companies in the pharmaceuticals, medical devices, healthcare services, and insurance industries. The sector is outperforming the market thus far in 2022, with a gain of 1.3% through early April, while the S&P 500 has declined 6%. The following are examples of how we use our analysts' Healthcare sector ideas in our Focus List and Model Portfolios. All stocks are rated BUY at Argus.
The stock market finally had a winning week, though January remains deeply in the loss column. On Friday, the Dow Jones Industrial Average rallied by 565 points, or 1.7%. The S&P 500 was up 2.43%, and the Nasdaq Composite surged 3.13%. For the week, the DJIA was up 460 points, or 1.34%, the S&P 500 was up 0.77%, and even the Nasdaq Composite eked out a gain of 0.01%. Year-to-date, the Dow is down 4.36%; the S&P 500 is off 6.93%; and the Nasdaq Composite is in correction territory, down 11.96%.
The onset of the coronavirus in 2020 knocked stocks into a bear market. Though equities recovered, the U.S. economy is about to slow down and COVID-19 cases are rising again as virus variants spread. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Daily prices can swing wildly, as they did three times in 2021 when stocks dropped 4%-5% in a matter of a few days. Is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. As well, those returns are from eras when the 10-year Treasury bond yield was not sub-2.0%. So what's a potential equity strategy for investors amid all the uncertainty? Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate. Academic literature and, more to the point, returns history indicate that Min Vol can deliver market-matching returns on an absolute basis and superior returns on a risk-adjusted basis over various time periods.
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.
In our view, the Life Sciences segment of the U.S. Healthcare industry is poised for strong growth over the next few years. This is the part of the industry that is developing the next generation of gene therapies, oncology biologics, and vaccines. Gene therapy holds promise for many diseases, but today serves only as an alternative treatment for some rare diseases. After a period of stagnation, gene therapy has experienced a renaissance, due largely to significant advances in technology and manufacturing scale. Scientists have developed safer, more-efficient viral vectors with better targeting capability. As such, the future for gene therapy appears bright. Currently, there are approximately 400 ongoing gene-therapy clinical trials, and we expect to see new gene therapies gain regulatory approval in the years ahead. This is critically important for patients and patient communities who are waiting for therapeutic advances to treat unmet genetic diseases. In the Argus Universe of Coverage, the following companies are among those that are involved in this part of the Healthcare market. All of them carry an Argus BUY rating.
The stock market moved higher last week as earnings season picked up steam. Tech stocks outperformed blue chips, though the margin of outperformance was slim owing to disappointing earnings from some tech names. During Friday's session, the Dow Jones Industrial Average increased 74 points, or 0.21%. The S&P 500 was down 0.11%, and the Nasdaq Composite was down 0.82%. For the week, the DJIA was up 382 points, or 1.08%, the S&P 500 was up 1.64%, and the Nasdaq Composite was up 1.29%. Year-to-date, the DJIA is up 16.57%, the S&P 500 is up 21.00%, and the Nasdaq Composite is up 17.08%.
Our proprietary Treasury Bond Yield Model is signaling that bond yields, which have declined more than 40 basis since late March, are too low based on investment fundamentals. Our model takes into account factors such as current yields, GDP growth, and long-term inflation, as well as stock prices and earnings, in order to make an asset-allocation recommendation between stocks and bonds. We smooth trends over a five-year period to avoid short-term momentum swings. Our current 10-year T-bond fair value yield is 3.4%. The normal valuation range has a floor of 2.1% and a ceiling of 4.7%. The current 10-year bond yield is around 1.35%, below the low end of the fundamental range and about 60% below fair value. Why is this the case, especially given recent GDP growth and inflation trends, not to mention aggressive fiscal stimulus spending from Washington during the pandemic? In our view, the low U.S. yields more likely reflect technical factors such as heavy buying from overseas investors seeking safety (or at least, yields that are not below zero), rather than the economic fundamentals. From an asset-allocation standpoint, we think bonds remain fully valued compared to stocks and recommend that long-term investors modestly favor equity securities in their diversified portfolios.
Stocks kept momentum going in July and August. Our analysts have been progressing through earnings season and have come across many stocks that have approached target prices. We set targets through our valuation framework, which includes analysis of historical multiples, peer multiples, and future dividends and cash flows. After adjusting for the latest information, here are some of the stocks on which we raised target prices over the past month. All of the following stocks are rated BUY at Argus.
Consumers are now more willing to spend on lifestyle enhancements along with necessary spending on life-saving treatments. In addition, the survival of the Affordable Care Act has kept the ranks of insured U.S. citizens above the historical average, further increasing consumer spending on healthcare services and products. Meanwhile, companies with experience in diagnostic testing, vaccines, and antiviral medicines, as well as suppliers of protective equipment and other hospital products, should benefit from efforts to contain the coronavirus pandemic. The sector accounts for 13.0% of the S&P 500, and includes companies in the pharmaceuticals, medical devices, healthcare services, and insurance industries. The sector is underperforming the market thus far in 2021, with a gain of 12.9%. We think the sector should account for 15-17% of diversified portfolios. Here is how we use our analysts' Financial Services sector ideas in our Focus List and Model Portfolios. All stocks are rated BUY at Argus.
The onset of the coronavirus in 2020 knocked the stock market into a bear market. Though stocks have recovered, the U.S. economy is about to slow down and COVID-19 cases are rising again as virus variants spread. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Daily prices can swing wildly, as they did during two consecutive days in mid-July when the Dow Jones Industrial Average plummeted more than 1,000 points. Yet investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes. Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate and can deliver market-matching returns on an absolute basis and superior returns on a risk-adjusted basis over various time periods.
The stock market moved higher last week as the market digested a busy earnings week. Tech stocks outperformed blue chips as earnings came in very strong in portions of the tech sector. During Friday's session, the Dow Jones Industrial Average increased 238 points, or 0.68%. The S&P 500 was up 1.01%, and the Nasdaq Composite was up 1.04%. For the week, the DJIA was up 374 points, or 1.08%, the S&P 500 was up 1.96%, and the Nasdaq Composite was up 2.84%. Year-to-date, the DJIA is up 14.56%, the S&P 500 is up 17.46%, and the Nasdaq Composite is up 15.12%.
Our proprietary Treasury Bond Yield Model is signaling that bond yields, which have declined 40 basis since late March, are too low based on investment fundamentals. Our model takes into account factors such as current yields, GDP growth, long-term inflation, stock prices, and earnings, in order to make an asset-allocation recommendation between stocks and bonds. We smooth trends over a five-year period to avoid short-term momentum swings. Our current 10-year T-bond fair value yield is 3.4%. The normal valuation range has a floor of 2.1% and a ceiling of 4.7%. The current 10-year bond yield is around 1.3%, below the low end of the fundamental range and well below fair value. From an asset-allocation standpoint, we think bonds remain fully valued compared to stocks and recommend that long-term investors modestly favor equities in diversified portfolios. We typically break the fixed-income portfolio component into four areas: Core, such as the industry benchmark ETF AGG or Treasuries; Inflation-Indexed; Opportunistic, such as securitized debt, corporate debt, high-yield or floating bonds or preferreds; and Cash. We currently favor the Opportunistic and Inflation-Indexed segments. On duration, we recommend the intermediate-term.
Many investors are beginning to focus their investment funds on companies that follow sustainable business practices and/or are addressing global impact issues. At Argus, we are a portfolio advisor to a Unit Investment Trust that is built around ESG criteria. We also have launched a separately managed account based on ESG and Impact investing principles. Two times a year, we screen our Universe of Coverage to highlight the stocks that score highest on ESG criteria. We note that Impact Investing addresses issues such as climate change, hunger, poverty, shelter, and clean water. Clean water is not only a personal issue; many industries, including oil, gas, semiconductors, chemicals, electric utilities, food products, beverages and metals and mining, are heavily reliant on clean water. According to the 2030 Water Resources Group, by 2030 "demand for water will be 40 percent higher than it is today, and more than 50 percent higher in the most rapidly developing countries. Historic rates of supply expansion and efficiency improvement will close only a fraction of this gap. Unless local, national and global communities come together and dramatically improve the way we envision and manage water, there will be many more hungry villages and degraded environments-and economic development itself will be put at risk in many countries." The companies in our list this week are working on systems and providing products to reduce global and domestic water risks.
Stocks were mixed on Monday morning, with strong gains in the Consumer Staples, Industrial, and Utility sectors and losses in Technology and Communication Services. Marriott shares fell 3% after the company posted lower-than-expected 1Q earnings, reflecting weak bookings in its core U.S. market. Tyson shares also fell, despite better-than-expected fiscal 2Q results, after management warned that rising costs would weigh on margins in the second half of the year. The Dow rose 0.8%, the S&P was flat, and the Nasdaq fell 1.4%. Crude oil traded near $64.50 per barrel, while gold rose $9 to $1839 per ounce.
Stocks were largely flat on Tuesday morning after a week of strong gains as investors awaited next steps in the passage of the Biden administration's stimulus plan. On the employment front, the Labor Department, in its monthly JOLTS report, said that U.S. job openings rose slightly in December, to 6.65 million, while hiring fell to 5.54 million from 5.94 million in November. The Dow and the S&P were flat, while the Nasdaq rose 0.3%. Crude oil traded near $58 per barrel, while gold rose $3 to $1837 per ounce.
Stocks rose on Thursday, rebounding from Wednesday's selloff but also giving up some of their gains late in the session. The Commerce Department reported strong growth in 3Q GDP, which rose at a better-than-expected 33.1% annualized rate. Unemployment claims, still high by historical standards, also trended lower. First-time unemployment benefit claims fell from the prior week to 751,000, below the consensus forecast. Continuing claims totaled 7.756 million, also down from the prior week and below consensus. The Dow rose 0.52%, the S&P 1.19%, and the Nasdaq 1.64%. Crude oil fell more than 3% to $36 per barrel, while gold fell $13 to $1866 per ounce.
Our proprietary Treasury Note Yield Model is signaling that bond yields, which have climbed 20 basis points in recent weeks, are still too low based on the fundamentals (though not necessarily on sentiment). Our model discounts factors such as current yields, GDP growth and long-term inflation, as well as stock prices and earnings. We smooth trends out over a five-year period, in order to avoid short-term momentum swings. Our current 10-year T-bond fair value yield is 1.75%. The normal valuation range has a floor of 0.5% and a ceiling of 3.0%. The current 10-year bond yield is around 0.74%, above the low end of the fundamental range but well below fair value. From an asset allocation standpoint, we think bonds remain fully valued compared to stocks and recommend that long-term investors modestly favor equity securities in their diversified portfolios. We typically break the fixed-income component of a portfolio into four areas: Core, such as the industry benchmark ETF AGG or Treasuries; Inflation-Indexed; Opportunistic, such as securitized debt, corporate debt, high-yield or floating bonds; and Cash. We currently favor the Core and Opportunistic segments. On duration, we recommend the intermediate-term.
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 Moderna Inc (MRNA); Lockheed Martin Corp. (LMT); Verizon Communications Inc (VZ); Adobe Inc (ADBE) and the Focus List deletions are Arista Networks Inc (ANET); Danaher Corp. (DHR); L3Harris Technologies Inc (LHX); Twitter Inc (TWTR).
Sustainable Impact Investing is gaining traction with the global investment community. In January, BlackRock CEO Lawrence Fink, who oversees approximately $7 trillion in assets, announced that his firm would be investing in companies that are making progress on sustainability. Mr. Fink's new focus follows rapid growth in sustainable assets in recent years. According to Opimas, a management consultancy focused on global capital markets, global assets under management in ESG strategies had grown to $40.5 trillion in 2020, doubling in four years and tripling in eight years. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies for various reasons. Now, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues.
Our proprietary Treasury Note Yield Model is signaling that bond yields are still too low based on the fundamentals (though not necessarily on sentiment). Our model discounts factors such as current yields, GDP growth and long-term inflation, as well as stock prices and earnings. We smooth trends out over five years to avoid being caught in short-term momentum swings. Our current 10-year T-bond fair value yield is 1.6%. The normal valuation range has a floor of 0.30% and a ceiling of 2.8%. The current 10-year bond yield is around 0.70%, above the low end of the fundamental range but well below fair value. We think bonds remain fully valued compared to stocks and recommend that long-term investors underweight fixed-income securities in diversified portfolios. We typically break the fixed-income portfolio component into four areas: Core, such as the industry benchmark ETF AGG or Treasuries; Inflation-Indexed; Opportunistic, such as securitized debt, corporate debt, high-yield or floating bonds; and Cash. We favor the Core and Opportunistic segments. On duration, we recommend the intermediate-term.
Many investors are beginning to focus their investment funds on companies that follow sustainable business practices and/or are addressing global impact issues. At Argus, we are a portfolio advisor to a Unit Investment Trust that is built around ESG criteria. We also have launched a separately managed account based on ESG and Impact investing principles. Two times a year, we screen our Universe of Coverage to highlight the stocks that score highest on ESG criteria. We note that Impact Investing addresses issues such as climate change, hunger, poverty, shelter and clean water. Clean water is not only a personal issue; many industries, including oil, gas, semiconductors, chemicals, electric utilities, food products, beverages and metals and mining, are heavily reliant on clean water. According to the 2030 Water Resources Group, by 2030 "demand for water will be 40 percent higher than it is today, and more than 50 percent higher in the most rapidly developing countries. Historic rates of supply expansion and efficiency improvement will close only a fraction of this gap. Unless local, national and global communities come together and dramatically improve the way we envision and manage water, there will be many more hungry villages and degraded environments -- and economic development itself will be put at risk in many countries." The companies in our list this week are working on systems and providing products to reduce global and domestic water risks.
Stocks fell on Tuesday morning as investors weighed another round of earnings reports and prospects for a new coronavirus relief package on Capitol Hill. Among other measures, the Republican proposal calls for a sharp cut in extra employment benefits to $200 per week, while Democrats are seeking to preserve the current benefit of $600 per week. The extra benefit will run out at the end of this month. On the earnings front, McDonald's shares fell 2% after the company reported sharply lower 2Q revenue and earnings, while 3M dropped 5% after it missed 2Q consensus estimates and did not reinstate its full-year guidance. The Dow fell 0.4%, the S&P 0.1%, and the Nasdaq 0.3%. Crude oil traded near $41 per barrel, while gold rose $15 to $1946 per ounce.
We have published our latest version of the Argus Millennial Generation portfolio. This new generation of consumers - the Millennials - has recently become the largest demographic cohort in the country, and this group, with new lifestyle preferences and different career goals, is demanding a new menu of sustainable products and services. The intersection of important Millennial trends - sustainability, healthier living, an entrepreneurial spirit - has resulted in the emergence and growth of numerous companies well suited to the new generation. Many of these companies are expected to be future industry leaders and are included in the dynamic Argus Universe of Coverage. A diversified portfolio, of course, is more than just a list of companies linked to themes. To build the Argus Millennial Generation Portfolio, we applied financial concepts such as industry diversification, income generation, risk reduction and growth at a reasonable price.
Our proprietary Treasury Note Yield Model is signaling that bond yields, which are near all-time lows, are too low based on fundamentals (though not necessarily on sentiment). Our model discounts factors such as current yields, GDP growth and long-term inflation, as well as stock prices and earnings. We smooth trends over a five-year period in order to avoid short-term momentum swings. Our current 10-year T-bond fair value yield is 2.9%. The normal valuation range has a floor of 1.6% and a ceiling of 4.1%. The current 10-year bond yield is around 0.7%, below the low end of the fundamental range and far below fair value. From an asset allocation standpoint, we think bonds are fully valued compared to stocks and recommend that long-term investors under-weight fixed-income securities in their diversified portfolios. We typically break the fixed-income portfolio component into four areas: Core, such as the industry benchmark ETF AGG or Treasuries; Inflation-Indexed; Opportunistic, such as securitized debt, corporate debt, high-yield or floating bonds; and Cash. We currently favor the Core and Opportunistic segments. On duration, we recommend the intermediate-term.
