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 AI) and services (such as Zoom calls) and moving into new markets, 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.

The daily charts for the major indices all have a 'rolling-over' look, with the Nasdaq and Nasdaq 100 (QQQ) appearing to be ahead of the S&P 500 (SPX) for a break lower. As well, the news from the Middle East seems to be getting worse by the day -- but, so far, the U.S stock market and economy seem to be turning a blind eye to the potential implications. Crude oil prices, both WTI and Brent, aren't exploding, but have seen pretty good rallies. WTI hit $87.60/barrel at the end of last week from the low $70s just two months ago, while Brent almost reached $92 last week from $77 in early February.

We see what we believe are some great opportunities right now in Healthcare -- and we like the sector overall. Argus Director of Research Jim Kelleher, CFA, recently completed his quarterly sector review and raised Healthcare sector to Over-Weight from Market-Weight. The healthcare environment is undergoing rapid transitions, and we now see an unfolding period of significant promise and opportunity. Our newly-favored stance is based on resumption of deferred medical procedures and significant new quality-of-life drugs and treatments. The category is broad and has underperformed the S&P 500 over the past year. The Healthcare sector ETF (XLV) is up 15% over the past year compared to a gain of 31% for the S&P 500. We see opportunity here to pick up some steady companies, with big brands and solid financials. These companies are science-focused and enhance lives. They are innovators. In our list this week, we look across several subsectors within the Healthcare sector and pull out some leaders we like. These stocks also are included in our Focus List and Model Portfolios, as noted below.

Management's ability to "raise guidance" can often be a catalyst for market-beating returns in the quarters ahead. The fourth-quarter earnings season has crossed the 95% mark and is wrapping up, with blended earnings (actual results and the consensus for those still to report) showing a year-over-year gain of almost 10%, according to Refinitiv. That is considerably better than the 4%-7% advance expected at the start of the earnings period. Leading the outperformance were strong gains in Communication Services earnings, up 53%. On the flipside, Energy (like last quarter) is performing the worst, down 22%. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Here is an initial list of BUY-rated companies in Argus' Fundamental Universe of Coverage at which management raised guidance or increased its outlook during the 4Q23 EPS reporting season.

Stock indices dipped in October 2023, with the S&P 500 falling a sharp 10% off summer highs. Looking at 13F filings of big institutional portfolios, we see that the big guns were busy last quarter taking advantage of that dip. Citadel Advisors went on a buying spree, adding to its $100 billion portfolio across a range of sectors. As did D.E. Shaw, adding to its $67 billion portfolio. Vickers Stock Research, a subsidiary of Argus Research Group, analyzes insider trading and institutional stock ownership. Form 13-Fs, which institutions must file to report their holdings, are due 45 days after the end of calendar quarters and have come in for 4Q24. We review 13Fs of major activists to determine core holdings and new purchases. Activist investing is now less about generating a short-term return and more about achieving long-term returns through an active management/investor partnership. Based on data from Vickers, here are some recent new purchases and key holdings of activist investors, as well as other high-profile money managers.

Rapidly rising inflation in 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Stocks have recovered thus far in 2023, but gains have been largely driven by only a handful of high-tech companies. Inflation remains high and the Fed continues to raise rates. Is a recession in the offing? With all the uncertainty, 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. 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.

Please note that starting Monday, December 18, 2023, and running through Friday, January 5, 2024, Argus will not publish the daily Market Update report. During this time, all other Argus reports will be published on their normal schedule. We will resume publishing the Market Update report on Monday, January 8, 2024. If you have any questions or concerns, please contact your Argus Account Representative. We wish all clients a happy holiday season!

Dividend income is often overlooked amid gyrations in the stock market. 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%. 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. High-yield stocks typically have dividends that pay out in the 5%-8% range. Though the income appears attractive, the share prices of high-yield stocks may be at risk. Dividend-growth stocks typically have lower yields, often in the 1.0%-2.5% range. But the lower-yielding dividends are not likely to be a huge component of cash flow, leaving management teams with other value-additive options for deploying cash. Further, while the yields are not as high, management teams may be more likely to boost the payouts over time, as earnings grow.

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.

Monday Tee Up: Inflation, Bank Earnings, Geopolitics

We see some possible gems right now in the Healthcare sector. Overall, we have a sector rating of Market-Weight, but this category is broad and has underperformed the S&P 500 year-to-date. The Healthcare ETF (XLV) is down 1.6% year-to-date compared to a gain of 19% for the S&P 500. We see opportunity to pick up some consistently steady companies, with big brands, and solid financials. These companies are science-focused, enhance lives, and are innovators. Some have recently raised guidance, communicating management's confidence. In our list this week, we look across several subsectors within the industry and pull out some leaders that we like.

Rapidly rising inflation in 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Stocks have recovered thus far in 2023, but gains have been largely driven by only a handful of high-tech companies. Inflation remains high and the Fed continues to raise rates. Is a recession in the offing? With all the uncertainty, 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. 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.

Markets Stumble on 'More Hikes Needed'

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 is at its largest point in history and still growing. If U.S. corporations weren't innovating, creating new products and services, and moving into new markets and applications, the domestic economy would be contracting, not expanding, and capital would not be flooding into the country. Particularly at this juncture of the market and economic cycles, when uncertainty is high due to high inflation and rising interest rates, we look to innovative companies to successfully navigate the challenges. At Argus, an 88-year-old independent research firm that has innovated a time or two in its long history, we have focused on four types of innovative companies: Industry Disruptors; First to Market; New Product Specialists; and Product & Process Perfectors. Here are some examples of companies, featured in our Innovation Theme Model Portfolio.

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 rose on Thursday afternoon, recovering from early losses despite more hot inflation data. In Europe, the EU statistics agency said that Eurozone consumer prices rose at an 8.5% annualized rate in February, down slightly from January but above the consensus forecast of 8.2% growth. Core inflation, excluding food and energy prices, also rose from the prior month. The report set the stage for further aggressive rate hikes from the ECB, including a likely 50-basis-point hike on March 16. In the U.S., weekly jobless claims were lower than expected, and remained below 200,000 for the seventh straight week. The Labor Department also said that 4Q unit labor costs rose at a 3.2% rate from the prior quarter, up from its initial estimate of 1.1% growth. On the earnings front, Salesforce was a bright spot. Salesforce shares jumped more than 11% after the company reported better-than-expected fiscal 4Q23 results and issued strong guidance for FY24. The Dow rose 1.05%, the S&P 0.76%, and the Nasdaq 0.73%. Crude oil traded near $78 per barrel, while gold rose slightly to $1842 per ounce.

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.

West Texas Intermediate (WTI) traded around $81/barrel on Tuesday, after sinking to around $70 in the first half of December. Crude has bounced off the key 61.8% retracement of the rally from the November 2020 lows. But WTI remains in a bearish channel off the peak since mid-June and needs to push sustainably above $82 to break the downtrend.

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.

There's an old saying about the stock market: "The mid-December lows are the only free lunch on Wall Street." In addition, December is strong historically. Unfortunately, the current market is not following the script. Indeed, you can throw all the studies in the trash during a bear market.

Stocks plunged on Thursday on recession and interest rate concerns, a day after the Fed raised interest rates for the seventh time this year. Retail sales data was weak, with a 0.6% decline in November, below the consensus forecast. On the employment front, first-time claims for state unemployment benefits fell by 20,000 to 211,000 for the week ended December 10, below the consensus of 230,000. The Dow fell 2.25%, the S&P 2.49%, and the Nasdaq 3.23%. Crude oil traded near $76 per barrel, while gold fell sharply to $1787 per ounce.

All technical eyes are on the S&P 500 (SPX), its 200-day average at 4,059, and the bear-market trendline at 4,110 (looking out two weeks). Many in the investment community are looking for a move up into this region and then another leg lower, with some expecting a retest and others even calling for a trip to 3,000 to 3,200. When the majority is expecting something, that's often a big tell that something else could happen. If the SPX breaks above resistance and stays there for more than a couple of days, there will be some very nervous market seers that likely will pivot, changing forecasts to a peak near the August 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.

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 is at its largest point in history and still growing. If U.S. corporations weren't innovating, creating new products and services, and moving into new markets and applications, the domestic economy would be contracting, not expanding, and capital would not be flooding into the country. Particularly at this juncture of the market and economic cycles, when uncertainty is high due to high inflation and rising interest rates, we look for innovative companies to navigate the challenges successfully. At Argus, an 88-year-old independent research firm that has innovated a time or two in its long history, we have focused on four types of innovative companies: Industry Disruptors; First to Market; New Product Specialists; and Product & Process Perfectors. Here are some examples of companies, featured in our Innovation theme model portfolio.

One can argue that any day stocks go up in a well-established bear market is a good day for the bulls. Yet on Tuesday, the indices closed well below intraday highs, especially the Nasdaq and the Nasdaq 100. The "500" gave up about half its gains, but still finished with a 1.1% pop. The Nasdaq and the QQQs gave up about 70% of their intraday gains, but did manage to rise 0.9% and 0.8%, respectfully.

Interest rates across the entire curve went somewhat parabolic in August. The U.S. Dollar Index continued its very steep ascent. The Federal Reserve is maintaining its hawkish stance based on its latest fed funds targets. As well, the Fed "finally" is getting its quantitative tightening (QT) in gear, which pulls liquidity out of the marketplace. Oh, and stock investors have been losing massive amounts of money. One might believe the economy is falling off a cliff. At least gasoline prices have crashed.

Monday Tee-Up: Inflation On the Table and Under a Microscope

Our bond/stock asset-allocation model is indicating that both stocks and bonds are overvalued, despite sell-offs in both asset classes in 2022. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks, of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is a 0.5 sigma premium for stocks, well within the normal range. The model has done a good job of highlighting asset class value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading consistently lower. The model indicated that stocks were at a sharp premium to fair value compared to bonds prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession. Starting in 2009, which was the depths of the financial crisis, the model indicated stocks were deeply oversold -- another good call. Markets can manage with premiums and discounts for extended periods. Based on the current model, we are expecting a recovery in stock prices from bear-market lows in 2H22 and have revised our year-end S&P 500 target to 4,300. Our recommended asset allocation for moderate accounts is 70% growth assets, including 65% equities and 5% alternatives; and 30% fixed income, with 200 basis points of the bond allocation in cash.

The major stock indices passed a key test late last week as they all held important support. For the S&P 500, a 61.8% retracement of the rally off the June lows targeted 3,900 -- and last week's low was 3,904. As well, a measured move based on the small head-and-shoulders top came in at 3,910. A 61.8% giveback for the Nasdaq was 11,564 (last week's low was 11,547), and for the QQQs, the same retrace targeted 293.84 (with the intraday low last week at 293).

Our bond/stock asset-allocation model indicates that both stocks and bonds are over-valued, despite sell-offs in both asset classes in 2022. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is a 1.0 sigma premium for stocks, which is still within the normal range. The model has done a good job of highlighting asset class value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading consistently lower, in part due to the benefits of globalization. The model indicated that stocks were at a sharp premium to fair value compared to bonds prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession in 2007-2009. In 2009, at the depths of the financial crisis, the model favored stocks over bonds -- another good call. Markets can manage with premiums and discounts for extended periods. Our current asset-allocation model for moderate accounts is 70% growth assets, including 65% equities and 5% alternatives; and 30% fixed income, with 200 basis points of the bond allocation in cash.

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.

This is among our most important themes for 2022, and stretches across industries. We think companies that consistently raise their dividends at a double-digit rate are sending off three important signals amid the recent market volatility: 1) the company's balance sheet is strong enough to pay a dividend; 2) management is focused on providing shareholder returns; and 3) management is confident enough in the near-term outlook to raise the payout aggressively. The third factor is especially important as the pandemic upended the nation's recent record of long-term economic growth. Here are 19 stocks that meet our double-digit dividend test and are on the Argus BUY List. They are also holdings in our Dividend Growth Separately Managed Account and in the Dividend Growers Total Return Trust, sponsored by SmartTrust.

Stocks fell on Wednesday morning after giving up early gains. Manufacturing data was better than expected. The Institute for Supply Management said that its manufacturing purchasing managers' index rose to 56.1 in May, up from 55.4 in April and above the Reuters consensus forecast of 54.5. On the employment front, the Labor Department's monthly JOLTS survey showed 11.4 million job openings at the end of April, down from 11.86 million a month earlier. The Dow fell 0.8%, the S&P 0.8%, and the Nasdaq 0.9%. Crude oil rose 1.5% to $116 per barrel, while gold fell $2 to $1846 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.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. 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 that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

ESG Stocks

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.

Stocks traded higher on Tuesday morning after reversing early losses. Pfizer shares fell 4% after the company projected lower-than-expected full-year sales of its COVID vaccine and antiviral pills. Peloton, which has been the subject of buyout speculation, jumped 29% after announcing a CEO change as well as significant job cuts. The Dow rose 0.9%, the S&P 0.7%, and the Nasdaq 1.0%. Crude oil fell to $89 per barrel, while gold rose $5 to $1827 per ounce.

Our bond/stock asset-allocation model indicates that stocks and bonds -- both of which are overvalued against their own metrics -- are near fair value against each other. Our model takes into account current levels and forecasts of short-term and long-term fixed-income yields, inflation, stock prices, GDP, and corporate earnings. The output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is 0.35 sigma premium for stocks. Generally, the model has done a good job highlighting asset class value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading consistently lower. The model indicated that stocks were at a sharp premium to fair value compared to bonds prior to the "dot-com" crash of 2001 and at a premium prior to the Great Recession in 2007-2009. Starting in 2009, the model favored stocks over bonds -- another good call. The markets can manage with premiums and discounts for extended periods. We'll become more concerned about equity valuations when the stock premium approaches 1.0 sigma. Our current recommended asset-allocation model for moderate accounts is 70% growth assets, including 65% equities and 5% alternatives; and 30% fixed income, with 200 basis points of the bond allocation in cash.

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 CVS Health Corp (CVS); Microsoft Corporation (MSFT); Moderna Inc (MRNA); McDonald`s Corp (MCD) and the Focus List deletions are Mckesson Corporation (MCK); HCA Healthcare Inc (HCA); KLA Corp. (KLAC); TJX Companies, Inc. (TJX).

The stock market moved higher last week during a busy week that consisted of a steady stream of earnings reports and election results. Tech stocks far outperformed blue chips for a third straight week. During Friday's session, the Dow Jones Industrial Average increased 204 points, or 0.56%. The S&P 500 was up 0.37%, and the Nasdaq Composite was up 0.20%. For the week, the DJIA was up 508 points, or 1.42%, the S&P 500 was up 2.00%, and the Nasdaq Composite was up 3.05%. Year-to-date, the DJIA is up 18.69%, the S&P 500 is up 25.07%, and the Nasdaq Composite is up 23.92%.

Stocks finished mixed in volatile trading on Thursday as investors assessed the likely timeline for Fed tapering and the uncertain impact of the Delta variant. Employment data was generally positive, as first-time unemployment benefit claims fell to 348,000, down from the prior week and below consensus. Continuing claims also fell from the prior week, to 2.820 million, but were slightly above the consensus forecast. On the earnings front, Macy's shares jumped nearly 20% after the company posted much better than expected 2Q results, reinstated its dividend, and raised its full-year guidance. The Dow fell 0.19%, the S&P rose 0.13%, and the Nasdaq rose 0.11%. Crude oil fell more than 2% to $64 per barrel, while gold fell slightly to $1783 per ounce.

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.

Stock prices, as expressed by the S&P 500, are near all-time highs. Further, on earnings that are still recovering, stocks are well above fair value, which our model pegs at closer to 3800. Our valuation model takes into account factors such as stock prices, five-year normalized earnings (three historical years, two forward-looking), GDP, inflation, and T-bond and T-bill yields. We note that stocks rarely trade right at fair value. Since 1960, on average, the index has traded at a tight 2% above fair value, but the standard deviation to the mean is 16%. As such, we normally expect the S&P 500 to trade between 14% undervalued and 18% overvalued. At current prices, the stock market is almost 30% above fair value, implying that investors are very optimistic about equities. Though we are still bullish on the economy, earnings, and market recoveries, we'd feel better about the longer-term outlook for stocks if valuations were not so stretched. Several factors could improve valuations: a pull-back in stock prices (as occurred on Monday) related to fears of inflation or COVID-19 variants; lower bond yields; or better earnings, which we do expect to see in upcoming quarters.

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 over 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Director of Research Kelleher typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY at Argus.

Stocks rose on Thursday morning to new records. The initial jobless claims for the week ended June 19 totaled 411,000, down from 418,000 a week ago. New orders for durable goods in May rose 2.3% to $253.3 billion. The S&P was up $0.6, the Nasdaq was up 0.9% and the Dow was down 0.8%. Crude oil traded near $73 per barrel, while gold fell $5 to $1779 per ounce.

Our bond/stock asset-allocation model is indicating that stocks and bonds (both of which are overvalued against their own metrics) are near fair value against each other. Our model takes into account current levels and forecasts of short-term and long-term fixed-income yields, inflation, stock prices, GDP and corporate earnings. The model output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks of 0.16 sigma, with a standard deviation of 1.0. The current valuation level is 0.1 sigma discount for stocks. Generally, the model has done a good job highlighting asset-class value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading lower over recent decades. The model indicated that stocks were at a sharp premium to fair value prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession in 2007-2009. Starting in 2009, the model favored stocks -- another good call. The market can manage with premiums and discounts for extended periods. Equity valuations should start to improve once corporate earnings begin to rebound -- likely later this month.

For weeks now, we have been hoping to see data from Vickers Stock Research that would suggest corporate executives, directors and beneficial owners are finally ready to give up on the very cautious stance they have maintained for several months. Arguably, that data has finally arrived -- although (surprise, surprise) there is a slight caveat. First, the data.

Stocks fluctuated on Thursday morning, a day after Wednesday's strong rally, as President Biden prepared to announce a new federal pandemic response strategy that will include an accelerated vaccine rollout. On Wednesday, Mr. Biden signed 17 executive orders reversing Trump administration policies in such areas as climate change, immigration, racial equality, and government accountability. On the employment front, the Labor Department reported that first-time claims for state unemployment benefits fell to 900,000 for the week ended January 16, down from a revised 926,000 a week earlier and below the Bloomberg consensus forecast of 935,000. The Dow fell 0.1%, the S&P rose 0.1%, and the Nasdaq rose 0.5%. Crude oil fell to $53 per barrel, while gold traded near $1863 per ounce.