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Stocks rose on Wednesday morning as investors awaited new developments in the debt ceiling negotiations in Washington. Housing market data was mixed, with growth in both single- and multi-family housing starts, but a decline in total building permits. Overall housing starts rose 2.2% to an annualized 1.401 million units, slightly above the Reuters consensus forecast. The Dow rose 0.4%, the S&P 0.4%, and the Nasdaq 0.6%. Crude oil traded near $72 per barrel, while gold fell $7 to $1986 per ounce.
In this edition, global oil inventories face future; feeling the internet's backbone; and initiating coverage of Qualys; and Lithium Americas, Bausch & Lomb and Macy's.
In this edition, railroads may be in for a bumpy ride; ESG has some opportunities; biotechs innovate; and Constellation Brands, Autodesk, and Tencent.
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.
Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. But the tide turned in 2022. The rollout of COVID-19 vaccines gave a lift to some of the cyclical companies (energy companies and regional banks) that had lagged in recent quarters, and value stocks outpaced growth stocks over the past year. Meanwhile, the Federal Reserve continues to lift interest rates to fend off inflation, which could possibly cap multiple expansion for growth companies for a few more quarters. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.2%, compared to the 0.9% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.
Monday Tee Up: Heavy on Earnings, Light on the Economy
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.
Stocks rose on Tuesday morning as investors awaited the results of the midterm elections, with late polls pointing to a Republican victory in the House and a tight race in the Senate. On the earnings front, Lyft shares fell more than 20% after the ride-hailing firm posted weaker-than-expected 3Q revenue and earnings. The Dow rose 1.3%, the S&P 1.1%, and the Nasdaq 1.3%. Crude oil fell slightly to $91.50 per barrel, while gold rose $36 to $1717 per ounce.
Both the potential onset of recession (if the economy is not in one already) and the sharp move higher in interest rates have pulled the foundation out from under the equity market in 2022. Few sectors have been spared, with only the Energy industry in the green on a year-to-date basis. The broad retrenchment has dragged down small-caps, mid-caps, large-caps, and even the mega-caps that had previously pushed stocks to new heights as the economy recovered from the pandemic. In our opinion, some of these world-class companies have been oversold. For our list this week, we have identified 11 BUY-rated large- or mega-cap companies across numerous industries that are selling at attractive valuations and are more than 20% below their 52-week highs.
Healthcare is a sector that includes many categories and investing disciplines. It is innovative, can be either growth or value, and can involve start-ups or mature companies. A healthcare company can be built around one product that is leveraged in broad and creative ways, or a company with depth, breadth and products that have many touchpoints. Many of the companies are truly science-based, some with managers who are stronger as scientists than as executives running a company; others have scientists focus on science while practiced managers mind the books. The Healthcare sector accounts for 15% of the S&P 500, with an overall market cap of $1.4 trillion dollars. Subsectors include Biotechnology, Healthcare Distributors, Healthcare Equipment, Healthcare Supplies, Life Sciences Tools and Services, Managed Healthcare, and Pharmaceuticals. We think investors should Over-Weight the sector and consider allocating about 15% of their diversified portfolios to stocks in the sector. Healthcare is slightly outperforming the S&P 500 thus far in 2022, with a loss of 14% compared to the 25% loss for the S&P 500. The following are some Argus BUY-rated Healthcare companies. The stocks were selected using the Argus screening tool and the following criteria: BUY-rated; large-cap (greater than $8 billion market capitalization); a Financial Strength rating of Medium-High or High; and paying a dividend. We feel these companies currently are best in class for the sector. Some are also part of our model portfolios (Growth & Income, Equity Income, Growth, and Institutional).
Value stocks -- a market segment that includes high-yield stocks -- are outperforming growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. In nine of the past 10 years, growth stocks have topped value stocks. But the tide may be turning. The rollout of COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and regional banks) that have lagged in recent quarters, and value stocks have kept up the pace with growth stocks in the past year. Now, the Federal Reserve lifting interest rates to fend off inflation, which will likely cap multiple expansion for growth companies. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.1%, compared to the 0.8% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.
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.
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.
Monday provided a much-needed rest for the stock market after a very large rebound last week. Following that strong week (and we've seen this before during the current decline), the "bottom-callers" are out, but not in big numbers. That's probably a good thing, as others are calling this another bear-market rally. From a technical perspective and using our own interpretation, it is far too early to call the bottom as there is just not enough of the needed evidence.
We are raising our intermediate-term technical outlook to neutral from bearish. This reverses our April 22 intermediate-term downgrade from neutral to bearish. This action is not a green light and we are not saying the bottom is in and it's up, up, and away from here. But we do think the major indices are attempting to hammer out (via a candlestick pattern) a bottom because we have seen a few "sticks" in recent trading sessions. Simply put, we are seeing days where stocks trade significantly lower but then finish strong.
The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.
Stocks gave up early gains on Tuesday morning amid continued concerns about inflation, Fed rate hikes, and lackluster corporate earnings. The slide followed Monday's massive selloff, which sent the S&P below 4,000 for the first time since March 2021. Peloton shares dropped more than 15% after the fitness equipment maker posted a wider-than-expected fiscal 3Q loss, offered disappointing 4Q revenue guidance, and said that it was 'thinly capitalized.' The Dow fell 0.4%, the S&P 0.4%, and the Nasdaq 0.3%. Crude oil traded near $101 per barrel, while gold fell $13 to $1845 per ounce.
We expect resiliency from the U.S. economy and don't anticipate a recession in the near term, based in large part on strength in the all-important consumer and investment sectors of the economy. But there are risks, especially if the Fed moves too quickly to raise rates. The domestic employment environment is nearing full strength, although consumer confidence trends are mixed. Auto sales have recovered from pandemic lows, but at an uneven pace. The U.S. housing market has aided the economic recovery from the pandemic; while high prices have cooled the market a bit, many metrics remain positive. The risk here is that the Fed moves too fast and the consumer sector stalls. Businesses are expanding, but growth is slowing somewhat. Exports are under pressure from the geopolitical tensions in Europe and the rising dollar. But import growth will not continue at the recent high-teens pace. Government spending trends should smooth out as well. Rolling all the data up, our GDP growth forecast in 2022 is now 2.2%, down from our prior forecast of 2.8%. Our estimates are a bit lower than those of other forecasters.
Markets have faced difficult times before, with challenging economic environments, wars, disease, banking and housing crises, and inflation much worse than we are seeing now, to name but a few. Of late, stock investors had it very good for a very long time -- but now, finding opportunities requires much more work. There is no secret sauce, but there are principals that are worth reviewing: 1) diversify; 2) look for strong management; 3) look for solid balance sheets; 4) do your homework; and 5) adapt. To assemble this week's list, we looked across several sectors that historically are considered to be the most-shielded from high inflation and high interest rates. We then cross-referenced our coverage universe for companies where our analysts recently raised target prices; that have an Argus Financial Strength rating of at least Medium-High; and that pay dividends of least 3%. Some companies also are featured in our model portfolios (Growth & Income, Equity Income, Growth, and Institutional). Here is our list of companies we believe to be recession-proof, all of which are rated BUY at Argus.
Value stocks -- a market segment that includes high-yield stocks -- are outperforming growth stocks in 2022. For the past decade, the performance record has favored growth, but the tide may be turning. The rollout of COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and regional banks) that have lagged in recent quarters, and value stocks have kept up the pace with growth stocks in the past year. Now, the Federal Reserve is poised to lift interest rates to fend off inflation, which will likely cap multiple expansion for growth companies. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 1.6%, compared to the 0.5% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.
Stocks fell again on Friday morning amid continued concerns about surging inflation and the impact of Fed rate hikes. Consumer confidence data was weaker than expected. The University of Michigan's consumer sentiment index fell to 61.7 in the first half of February, down from 67.2 in January and below the Reuters consensus forecast of 67.5. The Dow was flat, the S&P fell 0.3%, and the Nasdaq fell 0.7%. Crude oil rose to more than $91 per barrel, while gold traded near $1835 per ounce.
Recent data illustrates that U.S. GDP is still expanding (despite the pandemic), though not consistently across all segments of the economy. It seems that some variant of COVID-19 is going to be affecting GDP for several more quarters, at least. We expect resiliency from the economy and don't anticipate a recession in the near term. The primary driver of GDP over the next few quarters is likely to be developments in the pandemic. Trends here have been positive of late, as the impact of Omicron seemingly has passed a peak. The domestic employment environment is in better shape than it was a year ago, although consumer confidence trends are mixed. Auto sales have recovered from pandemic lows, but growth has slowed due to supply-chain issues (that we note are starting to improve). Businesses are again expanding. But the housing marke has started to cool as home prices soar. Rolling the data up, our model calls for a 2.1% increase in 1Q22 GDP. We look for improving growth as 2022 progresses, as Omicron fears fade. On an annual basis, our forecast for 2022 GDP growth is 3.4%. Our estimates are a bit lower than other forecasters. The Federal Reserve and the IMF are anticipating 2022 growth of 4.0%. The Philadelphia Federal Reserve's Survey of Professional Forecasters is calling for growth of 3.9% in 2022. That said, the GDPNow Forecast from the Federal Reserve Bank of Atlanta is only 0.1% for 1Q22.
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.
Stocks were mixed on Wednesday morning as investors awaited the details of the Fed's tapering plan. Employment data was stronger than expected. Payroll provider ADP said that U.S. private employers added 571,000 payroll jobs in October, up from 523,000 in September and above the Reuters consensus forecast of 400,000. The Dow fell 0.2%, the S&P fell 0.1%, and the Nasdaq rose 0.2%. Crude oil traded near $81.50 per barrel, while gold fell $20 to $1770 per ounce.
Stocks rose on Thursday morning on lessening fears concerning the debt ceiling. Lawmakers have reached a deal to extend the debt limit through the beginning of December. The Labor Department reported that initial unemployment claims for the week ended October 2 were 326,000 vs. 348,000 expected and an upwardly revised 364,000 during prior week. Continuing claims for the week ended September 25 were 2.7 million, less than the 2.8 million expected. The Dow rose 1.5%, the S&P 1.5%, and the Nasdaq 1.7%. Crude oil traded near $78 per barrel, while gold traded near $1758 per ounce.
Data that has emerged in recent weeks illustrates that the economy is still expanding, though some white-hot growth rates in certain sectors are starting to cool. The primary driver of GDP over the next few quarters is likely to be the country's physical health, as the nation recovers from the COVID-19 pandemic. Trends here have been slightly more positive in recent weeks, as the fourth wave of the pandemic, due largely to the Delta variant of COVID-19, may be past its peak. The domestic employment environment is in better shape than it was a year ago, though still far from full strength -- and it has weakened recently due to the Delta variant. Auto sales have recovered, but inventories are low due to bottlenecks. And the housing market, which had been strong in 1H21, is starting to cool as house prices soar. Rolling all the data up, and taking into account rising COVID cases as well as emerging supply chain issues and inventory levels, our GDP model now calls for 4.2% increase in GDP in 3Q21. We expect better growth in 4Q, too, before rates fall somewhat more sharply in 2022. On an annual basis, we look for overall GDP growth of approximately 5.8% in 2021 and 3.7% in 2022. Our estimates are consistent with consensus forecasts and the outlook from the Federal Reserve, which call for growth of 4%-6% in 2021. The GDPNow Forecast from the Federal Reserve Bank of Atlanta is 3.2% for 3Q21.
The data that has emerged in recent weeks illustrates that the economy is still expanding, though some white-hot growth rates in certain sectors are starting to cool. As we do each month, we have reviewed more than 25 important demographic and economic data points, from all sectors of the economy including consumer, housing, automotive, manufacturing and exports, among others. We also pay close attention to Federal Reserve activity, oil prices, the dollar, and trends in COVID-19. Rolling all the data up, and looking out two years, our GDP model now calls for 5.3% increase in GDP in 3Q21, down from our earlier forecast of 5.8%. We expect good growth in 4Q as well, before rates fall more sharply in 2022. On an annual basis, we look for overall GDP growth of approximately 6.0 % in 2021 and 3.7% in 2022. Our estimates are consistent with consensus forecasts and the outlook from the Federal Reserve, which call for growth of 4%-7% in 2021. The GDPNow Forecast from the Federal Reserve Bank of Atlanta is 5.3% for 3Q21. For more details of the trends inthis data and our assumptions, see the Argus Viewpoint report.
This edition features our second-quarter outlook on China; California's labor ruling; COVID-19 vaccine approval; and notes from Salesforce, First Solar, and GM.
Value stocks are outperforming growth in 2021 for the first time since 2016. While a recent rally in growth stocks has narrowed the performance advantage for value in the year to date, an environment of historically low interest rates is one in which many investors are still searching for high levels of income -- which often can be found in value stocks. When we look for attractive high-yield/deep-value stocks at Argus, we look for low valuations on metrics such as price/earnings, price/sales, price/book, yield, and price/cash flow. We also look for companies with clean balance sheets, high levels of profitability, high-quality earnings, and experienced management teams. We seek to avoid companies in industries that are in secular decline, or with dividend yields that are so high that the payout is clearly at risk. Based on numerous requests from clients, we have designed a portfolio of companies that are BUY-rated at Argus Research, have a Financial Strength rating of at least Medium, and have a yield of 3.0% or higher.
Second-quarter earnings announcements are nearly complete, with some 90% of S&P 500 companies having reported. The profit recovery from the depths of the pandemic low in 2Q20 was been swift, with earnings growth of 93% in 2Q21, according to Refinitiv. But earnings do not look good just on a relative basis -- the $53.93 projected to be earned by S&P 500 companies for the second quarter is the highest ever for the index. Investors can now turn their attention to the third quarter, when earnings are expected to rise a still-strong 30% year-over-year. Our analysts are always on the lookout for companies that raise their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst to strong returns in the quarters ahead. Here are 20 BUY-rated companies in Argus coverage for which management has raised guidance or increased its outlook during the 2Q21 EPS reporting season.
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.
Stocks rose on Thursday morning, a day after the Federal Reserve signaled that it would wait for further economic recovery before paring back its $120 billion per month bond-buying program. The Commerce Department reported that the U.S. economy expanded at a 6.5% annualized rate in 2Q, up from 6.3% in 1Q, but well below the Bloomberg consensus forecast of 8.4%. The Dow rose 0.5%, the S&P 0.5%, and the Nasdaq 0.4%. Crude oil rose 1% to $73 per barrel, while gold traded near $1829 per ounce.
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.
Since May and June, we have seen and commented on a marked improvement in the relative strength of the Nasdaq, the Nasdaq 100 (QQQ), and many Tech ETFs (like the XLK, IGV-iShares N.A. Tech-Software, $NYFANG-NYSE Fang Plus Index, and the SKYY or First Trust Cloud Computing.
Recent economic data illustrates that conditions are improving, though serious risks remain. The primary driver of GDP over the next few quarters is likely to be the country's physical health, as the nation recovers from COVID-19. Elsewhere, the employment environment is in better shape than it was a year ago (though still far from strong) and consumer confidence is improving. We expect that rising confidence will lead to continued growth in consumer spending. Auto sales have recovered, and the housing market remains strong, even as interest rates tick higher. Businesses are again expanding. Our GDP model now calls for a 2.1% increase in absolute GDP in 2Q21 from 1Q21, which translates to an annualized gain of 8.9%, up from our prior forecast of 8.8%. We expect further improvement into 2H21. On an annual basis, we look for overall GDP growth of approximately 5.7% in 2021 and 3.7% in 2022. Our estimates are consistent with consensus forecasts and the outlook from the Federal Reserve, which call for growth of 4%-6% in 2021. The GDPNow forecast from the Federal Reserve Bank of Atlanta is 10.3% for 2Q21.
As we approach the midpoint of 2021, and as we have pointed out many times this year and at the end of last year, index and sector outperformance has flipped 180 degrees. Year-to-date (YTD), the S&P 500 has tacked on 11.6%, the Dow Jones Industrials and the NYSE Composite have added almost 15%, the Nasdaq has gained 5.6%, and the Nasdaq 100 (QQQ) is up 5%. Meanwhile, the S&P Mid-Cap 400 has jumped 18%, the Russell 2000 (IWM) has leapt 15.7%, and the S&P Small-Cap 600 (SML) has catapulted 23%.
