Monday Tee Up: Back to Inflation

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

Stocks rose strongly on Friday morning after lower-than-expected employment growth raised the likelihood of an end to the Fed's rate hike campaign. The Labor Department said that the U.S. economy added 150,000 payroll jobs in October, down from a revised 297,000 in September and below the Reuters consensus forecast of 180,000. In other signs of a cooling labor market, the unemployment rate edged up to 3.9% from 3.8% a month earlier and annual growth in average hourly earnings slowed to 4.1% from 4.3%. The Dow rose 0.7%, the S&P 0.9%, and the Nasdaq 1.2%. Crude oil traded near $82 per barrel, while gold rose $8 to $2002 per ounce.

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

The first-quarter earnings season has passed the halfway mark with 292 (or 58%) of S&P 500 companies having reported results through August 1. An impressive 81% of those companies exceeded earnings expectations, while the blended (actual and still to report) earnings decline is now projected at 5.9%, according to Refinitv. The Consumer Discretionary sector still leads with 36% earnings growth, while Energy is now by far the weakest sector, with a 48% profit 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 market-beating 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 2Q23 EPS reporting season.

Stocks recouped some of their recent losses on Friday morning following the government's July employment report. The Labor Department said that the U.S. economy added 187,000 payroll jobs in July, up from a revised 185,000 in June but below the Reuters consensus of 200,000. The unemployment rate ticked lower to 3.5% from 3.6% in June, and wage growth was stronger than expected. Average hourly earnings rose 4.4% from the prior year, above the consensus forecast of 4.2%. The Dow rose 0.6%, the S&P 0.6%, and the Nasdaq 0.8%. Crude oil rose 1% to $82.50 per barrel, while gold rose $8 to $1977 per ounce.

Stocks rallied on Friday morning following a better-than-expected April employment report and a recovery in regional bank stocks. The Labor Department said that the U.S. economy generated 253,000 new payroll jobs in April, above the Reuters consensus of 180,000 and a revised 165,000 in March. The unemployment rate fell to 3.4% from 3.5%. The Dow rose 1.2%, the S&P 1.4%, and the Nasdaq 1.7%. Crude oil rose nearly 4% to $71 per barrel, while gold traded near $2022 per ounce.

Stocks rose on Monday morning, but gave up some of their strong early gains. Capital goods data was better than expected. The Commerce Department said that orders for core capital goods excluding aircraft rose 0.8% in January, up from a decline of 0.3% in December and above the Reuters consensus forecast of 0.1% growth. On the housing front, the National Association of Realtors said that its pending home sales index rose 8.1% in January, above the consensus forecast of 1.0%. However, pending home sales were still down 24.1% from the prior year. The Dow rose 0.3%, the S&P 0.5%, and the Nasdaq 0.8%. Crude oil traded near $75.50 per barrel, while gold rose $5 to $1822 per ounce.

Monday Tee Up: Inflation, Midterms, Earnings

Stocks fell on Friday morning after a better than expected July employment report raised prospects for continued aggressive Fed rate hikes. The Labor Department said that the U.S. economy added 528,000 nonfarm payroll jobs last month, up from a revised 398,000 in June and well above the consensus forecast of 250,000. The official unemployment rate ticked down to 3.5%, below the consensus of 3.6%. Wage growth was higher than expected. Average hourly earnings rose 0.5% from the prior month and 5.2% from the prior year, both above consensus estimates. The Dow fell 0.2%, the S&P 0.6%, and the Nasdaq 1.1%. Crude oil rose more than 2% to $90.50 per barrel, while gold fell $15 to $1792 per ounce.

Stocks fell again on Friday morning, adding to Thursday's massive losses, amid growing concerns about the Fed's ability to control inflation, along with the uncertain impact of the war in Ukraine and economic weakness in China. On the employment front, the Labor Department said that the U.S. economy added 428,000 payroll jobs in April, in line with the revised reading for March and above the Bloomberg consensus forecast of 380,000. The unemployment rate held steady at 3.6%, just above the consensus forecast of 3.5%. The Dow fell 0.7%, the S&P 0.7%, and the Nasdaq 0.9%. Crude oil rose to $110.50 per barrel, while gold traded near $1891 per ounce.

Stocks finished lower on Thursday amid the intensifying war in Ukraine, where Russian forces appeared to be encircling Kyiv and gaining control of key Black Sea ports. U.S. employment data was better than expected. The Labor Department said that first-time jobless claims fell to 215,000 for the week ended February 26, down from 233,000 a week earlier and below the Bloomberg consensus forecast of 225,000. The data came ahead of the government's February employment report on Friday morning. The consensus calls for the addition of 403,000 new payroll jobs after an increase of 467,000 in January, and a slight decrease in the unemployment rate to 3.9%. The Dow fell 0.29%, the S&P 0.53%, and the Nasdaq 1.56%. Crude oil traded near $108 per barrel, while gold rose $17 to $1940 per ounce.

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%.

Cash is no longer king for point-of-sale transactions, with only 12% market share compared to 38% for credit cards, 29% for debit cards, and 10% for the fast-growing digital wallet sector. We see a long secular road for growth, as digital payments are in the early stages of transition. Factors driving this trend include U.S. banks and the Federal Reserve encouraging digital over paper money; the pandemic, which has accelerated contactless payments as a safety step; and greater merchant acceptance for small dollar amounts. Importantly, the emerging generations (Millennials and Gen Z) embrace both mobile banking and digital payments. Forecasts call for digital-payment transaction value to grow at an 11% compound annual rate for the next five years and to reach $11 trillion from the 2020 level of $5.4 trillion. Several companies in the Argus Research fundamental universe of coverage are in position to take advantage of this opportunity. Each of the following stocks is rated BUY at Argus.

The overall volume of insider transactions remains light due to trading restrictions in place during earnings season, but there are some interesting trends in the current data from Vickers Stock Research. And those trends are positive.

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 Vontier Corp (VNT); Discover Financial Services (DFS); U.S. Bancorp. (USB); LyondellBasell Industries NV (LYB) and the Focus List deletions are Linde Plc (LIN); ServiceNow Inc (NOW); Old Dominion Freight Line, Inc (ODFL); Square Inc (SQ).

This edition features the coming corporate tax hike; U.S. support for vaccine patent waiver; Macao gaming; and notes from Zillow, CarMax, and Square.

Stocks rose on Friday morning, led by the Technology sector, as a disappointing April jobs report diminished concerns that the Fed would cut back on bond purchases. The yield on the 10-year Treasury fell sharply to about 1.55% following the report. The Labor Department said that the U.S. added just 266,000 jobs in April, down from 770,000 in March and well below the Reuters consensus forecast of 978,000. The official unemployment rate ticked up to 6.1% from 6.0% in March. The Dow rose 0.5%, the S&P 0.8%, and the Nasdaq 1.3%. Crude oil traded near $65 per barrel, while gold rose $15 to $1831 per ounce.

What's up with bitcoin? Certainly the price of the cryptocurrency itself, which has risen more than 62% year-to-date and has more than quadrupled over the past year. Digital currencies are moving more toward the mainstream. Federal Reserve Chairman Jerome Powell has indicated the central bank will be looking into a "digital dollar" and Treasury Secretary Janet Yellen has commented that a digital security could result in faster, safer and cheaper payments. We don't have an investment rating for bitcoin as it does not always trade on investment fundamentals, but here are a few stocks that stand to benefit from the uptrend and increased visibility. All are rated BUY at Argus.

There are now more than 80 million Millennials, born between 1982 and 2000 and ranging in age from their early 20s to their late-30s. This generation is the largest in history - bigger than even the Baby Boomers. Yet despite their size, and according to our research, Millennials currently account for 25% of total U.S income - some $3.1 trillion in direct annual purchasing power. Millennials are already coveted by marketers, even though their annual average income is 40% below the spending levels of the generation ahead of them (Gen X) and 30% below the spending levels of Baby Boomers, who are slowing down. But as Millennials rise into their peak earning years, their earnings are expected to grow.

Stocks fell on Thursday morning, reversing Wednesday's gains, following mixed earnings reports and new employment data. The Labor Department said that first-time claims for state unemployment benefits fell to 730,000 for the week ended February 20, down from a revised 841,000 a week earlier and below the Bloomberg consensus forecast of 825,000. Moderna shares rose 6%, despite a wider-than-expected 4Q loss, as revenue far exceeded the consensus estimate. The company also said that it expected to produce at least 700 million doses of its coronavirus vaccine this year, up from its prior forecast, and 1.4 billion in 2022. The Dow fell 0.4%, the S&P 0.7%, and the Nasdaq 1.0%. Crude oil fell slightly to $63 per barrel, while gold traded near $1781 per ounce.

Our bond/stock asset-allocation model is rendering the two assets in line at fair value. That means that neither is a clear overweight in diversified portfolios. Our model takes into account current levels and forecasts of bond 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 0.18 sigma) with a standard deviation of 1.0. The current valuation level is 0.2 sigma premium for stocks, essentially in line with fair value. Generally, the model has done a good job of highlighting 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 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 of time. Equity valuations will likely start to improve once corporate earnings begin to rebound later this year.

Our bond/stock model asset allocation continues to favor stocks over bonds, even as equity prices have risen to near-record heights. Our model takes into account current levels and forecasts of bond 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 0.18 sigma, with a standard deviation of 1.0. The current valuation level is 0.10 sigma premium for bonds -- and a discount for stocks. Generally, the model has done a good job of highlighting 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 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. As the chart shows, the market can manage with premiums and discounts for an extended period of time. Equity valuations will likely start to improve further once corporate earnings begin to rebound next year.

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 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.

This edition features digital ad spending outlook; pandemic's impact on payments industry; chipmakers; and notes from Boeing, Amazon, and Curaleaf.

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 Clorox Co. (CLX); Zoetis Inc (ZTS); Square Inc (SQ); Williams-Sonoma, Inc. (WSM) and the Focus List deletions are CBOE Global Markets Inc. (CBOE); D.R. Horton Inc. (DHI); Incyte Corp. (INCY); Pepsico Inc. (PEP).

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 Clorox Co. (CLX); Zoetis Inc (ZTS); Square Inc (SQ); Williams-Sonoma, Inc. (WSM) and the Focus List deletions are CBOE Global Markets Inc. (CBOE); D.R. Horton Inc. (DHI); Incyte Corp. (INCY); Pepsico Inc. (PEP).

Stocks pared early losses and traded near breakeven on Friday morning, as Joe Biden moved closer to winning the presidency, with narrow leads in key swing states. October employment data was stronger than expected. The Labor Department said that the U.S. economy added 638,000 nonfarm payroll jobs in October, above the Bloomberg consensus forecast of 580,000 though down from a revised 672,000 in September. The official unemployment rate also fell to 6.9% from 7.9% and was lower than the consensus forecast. The Dow and the S&P were flat, and the Nasdaq was down 0.2%. Crude oil fell more than 3% to $37.50 per barrel, while gold rose $6 to $1953 per ounce.

Stocks rose on Wednesday morning amid positive news on potential coronavirus vaccines and signs of progress on a new fiscal stimulus plan in Washington. However, employment data disappointed. Payroll provider ADP said that U.S. private employers added just 167,000 new jobs in July, down from more than 4.3 million in June and below the Reuters consensus of 1.5 million. On the earnings front, Disney shares rose strongly after the company reported a surprise quarterly profit late Wednesday, while CVS shares fell despite strong 2Q results and higher full-year guidance. The Dow rose 1.2%, the S&P 0.6%, and the Nasdaq 0.3%. Crude oil traded near $43 per barrel, while gold rose $40 to $2061 per ounce.

Stocks rose on Wednesday morning amid positive news on potential coronavirus vaccines and signs of progress on a new fiscal stimulus plan in Washington. However, employment data disappointed. Payroll provider ADP said that U.S. private employers added just 167,000 new jobs in July, down from more than 4.3 million in June and below the Reuters consensus of 1.5 million. On the earnings front, Disney shares rose strongly after the company reported a surprise quarterly profit late Wednesday, while CVS shares fell despite strong 2Q results and higher full-year guidance. The Dow rose 1.2%, the S&P 0.6%, and the Nasdaq 0.3%. Crude oil traded near $43 per barrel, while gold rose $40 to $2061 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.

In the first quarter, the S&P 500 declined 20% on a capital-appreciation basis (excluding dividends). In the second quarter, the index jumped back by a rounded 20%. Sector performance was abysmal across the board in the first quarter, while second-quarter sector performance showed some clear trends. The sector-performance map in the first half may hold some clues for second-half performance.

Stocks rose sharply on Friday, despite the backdrop of the worst monthly employment report in U.S. history. The Dow Jones Industrial Average was up 1.9%, the Nasdaq Composite advanced 1.6% and the S&P 500 added 1.7%. As earnings season for large-cap companies began to wind down, stocks were also lifted higher for the week, with gains of 2.6% for the Dow, 6.0% for the Nasdaq and 3.5% for the S&P 500. Year-to-date losses are now 14.7% for the Dow and 9.3% for the S&P 500, while the Nasdaq has turned positive by 1.7%.

Stocks rose sharply on Friday, despite the backdrop of the worst monthly employment report in U.S. history. The Dow Jones Industrial Average was up 1.9%, the Nasdaq Composite advanced 1.6% and the S&P 500 added 1.7%. As earnings season for large-cap companies began to wind down, stocks were also lifted higher for the week, with gains of 2.6% for the Dow, 6.0% for the Nasdaq and 3.5% for the S&P 500. Year-to-date losses are now 14.7% for the Dow and 9.3% for the S&P 500, while the Nasdaq has turned positive by 1.7%.

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 Danaher Corp. (DHR); Procter & Gamble Co. (PG); Allstate Corp (The) (ALL); Advanced Micro Devices Inc. (AMD) and the Focus List deletions are Hilton Worldwide Holdings Inc (HLT); Square Inc (SQ); Zimmer Biomet Holdings Inc (ZBH); Zions Bancorporation N.A (ZION).

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 Danaher Corp. (DHR); Procter & Gamble Co. (PG); Allstate Corp (The) (ALL); Advanced Micro Devices Inc. (AMD) and the Focus List deletions are Hilton Worldwide Holdings Inc (HLT); Square Inc (SQ); Zimmer Biomet Holdings Inc (ZBH); Zions Bancorporation N.A (ZION).

Evolving Assumptions in the Age of Coronavirus