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.

Our weekly review of insider sentiment, using data from Vickers Stock Research, has us looking for calendar dates that we can use to end the phrase 'the weakest point since.' As in, 'that data point is at its weakest point since...'

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).

Stocks rose strongly on Monday morning after Pfizer and BioNTech reported that their coronavirus vaccine was more than 90% effective in a late-stage clinical trial. The companies also said that they had thus far found no serious safety concerns with the vaccine. Pfizer shares rose nearly 9%. The Dow rose 3.9%, the S&P 2.8%, and the Nasdaq 0.7%. Crude oil jumped more than 8% to $40 per barrel, while gold dropped $88 to $1864 per ounce.

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.

What is it with Mondays in October? Last Monday, the major indices all fell 1.6%. Yesterday, the S&P 500 lost 1.9%, while the Nasdaq gave up 1.6% and the Nasdaq 100 fell 1.5%. This Monday, the smaller stocks fared worse, with the S&P 400 MidCap (MDY) and the Russell 2000 (IWM) giving up about 2.1%.

For a third consecutive week, data from Vickers Stock Research paints a picture of corporate executives, directors and beneficial owners selling shares at a rate that is higher than expected. Also true is that the volume of insider transactions is low, in keeping with the ongoing corporate earnings season (which prevents most insiders from trading). While one might argue that the low volume offsets the higher-than-normal selling, we say 'not so fast.'

If you looked only at the closing figures for October 12, you might say that the stock market was very strong. Yet intraday stats were abnormal, tilted toward big caps to an almost scary degree. Then, at about 2:30, there was a solid rotation back to the small and mid-caps and away from the big boys. Market breadth widened out quite a bit by the end of the session.

There are many ways we could describe 2020, depending on whether we're talking about the stock market, COVID-19, the economy, politics, sports, and just about anything else. For the stock market, we could label it "The Great Dichotomy" or maybe the "The Great Chasm."

Stocks fizzled in September, while bond prices were steady: equities are now underperforming fixed-income instruments in 2020. From an asset allocation standpoint, our model is balanced equally between stocks and bonds for long-term investors. In other words, these asset classes should be at their normal weights in diversified portfolios. We continue to favor U.S. stocks over international stocks, growth stocks over value, and large-caps over small. Drilling deeper, we look for large-cap companies with strong balance sheets and experienced management teams to be the leaders during an eventual recovery. Our recommended exposure to small- and mid-caps is now 10% of equity allocation, below the benchmark weighting. Internationally, U.S. stocks have outperformed global stocks over the trailing one- and five-year periods. We expect this to continue over the long term, given volatile global economic and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 15-18% of equity exposure to the group. In terms of growth and value, growth, led by Tech and Healthcare, continues to outperform value, driven by Energy and Materials.

Stocks posted modest gains during the week, but gave back some gains on Friday. Riskier stocks performed slightly worse than blue chips, mainly due to a tech sell-off at the end of the week. On Friday, the Dow Jones Industrial Average fell 134 points, or 0.5%. The S&P 500 fell 1.0% and the Nasdaq Composite dropped 2.2%. For the full week, the Dow was up 1.9%, and the S&P 500 and the Nasdaq were both up 1.5%. Last week's gains snapped a four-week losing streak for the broader market. For the year-to-date, the DJIA is down 3.0%, the S&P is up 3.6%, and the Nasdaq is up 23.4%. Over the past 52 weeks, the Dow is up 4.2%, the S&P 500 is up 13.4%, and the Nasdaq is up 38.7%.

September, a historically tough month, lived up to its billing in 2020. Major indices all lost ground, with the leaders for 2020 getting hit the hardest. Energy and Financials, two consistent themes, were weak once again. Results could have been worse, as late-month strength cut some of the losses.

After Monday's bullish intraday reversal and relative strength from prior leaders, Tuesday followed through with strength from the leaders of just a few weeks ago. Consumer Discretionary (XLY) rose 2.2%, aided by heavily weighted AMZN (22%), which spiked 5.6%. This was AMZN's biggest day in over two months. Communications Services (XLC) climbed 2%, led by FB and GOOGL -- which each rose over 2%. Not to be left out, Technology (XLK) gained 1.6%, led by gains in AAPL and MSFT. Could everything be right with the stock market once again?

Core prices are starting to increase, though we don't think the U.S. Federal Reserve is too worried. Currently, the central bank is busy backstopping mortgage markets, money-market mutual funds, small businesses, mid-sized businesses, corporate debt, and some state and local governments. There's probably more, but it is hard to keep track. The total bill? Let's just say the central bank is likely to more than double the $4.1 trillion in assets that were on its balance sheet at year-end 2019 (the current total is $7.1 trillion). Meanwhile, most inflation measures remain below the Fed's target of 2.0%, though on average they are up month-over-month. We track 14 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 0.1% rate, ahead of last month's reading, which was deflationary at -0.8%. Looking at core inflation -- which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy and the 10-year TIPs Breakeven Interest Rate -- our reading is 1.7%, up slightly from 1.4% last month (but still low). With this inflation backdrop, we expect the Fed will focus on other issues and keep short-term rates close to zero until at least 2022.

After trading sideways in a very tight range during the summer, crude oil (WTI) has rolled over a bit. We thought this tight action was bullish, after WTI made an incredible recovery from an intraday low of $6.50/barrel on April 21. The absence of a pullback after a massive recovery looked like it was setting up for another run to the upside. Not so fast!

If you read Market Movers on a regular basis, you know we prefer a market led by many. But that is not a prerequisite due to the top-heavy market-cap-weighted indices. Fortunately for the S&P 500, Nasdaq, and Nasdaq 100, the primary beneficiaries of the pandemic just happened to already be the largest stocks in those indices.

Stocks rallied in the trading week ended August 21 on strong economic data, capped by a blowout report on existing-home sales for July. PMI reports from IHS Markit also showed strength in both manufacturing and non-manufacturing. Stocks moved to new highs even though Congress failed to act on a second round of stimulus, widely seen as needed for those who lost supplemental federal unemployment benefits late in July.

Stocks rallied last week on strong economic data, capped by a blowout report on existing-home sales for July. PMI reports from IHS Markit also showed strength in both manufacturing and non-manufacturing. Stocks moved to new highs even though Congress failed to act on a second round of stimulus, widely seen as needed for those who lost supplemental federal unemployment benefits late in July.

Stocks were largely flat on Thursday morning following a new round of corporate earnings reports and weekly employment data. The Labor Department said that first-time unemployment benefit claims fell by 249,000 to 1.186 million for the week ended August 1, below the Reuters consensus forecast of 1.415 million. On the earnings front, Bristol-Myers shares rose after the company posted strong 2Q results and boosted its full-year guidance. The Dow was flat, the S&P fell 0.1%, and the Nasdaq fell 0.1%. Crude oil fell slightly to $42 per barrel, while gold rose $16 to $2066 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.