Semiconductors represent a key technology industry. The two largest related ETFs are the iShares PHLX Semiconductor (SOXX) and the VanEck Vectors Semi ETF (SMH). Both have similar stocks, but the weightings are a bit different -- which is a bit of a mystery. Most broad ETFs weight their holdings by market cap, so the weightings should be pretty close. Yet there are differences.

The 10-year Treasury yield has soared after bottoming in March 2020. Over the past three weeks, T-yields have flattened after getting very overbought on the daily and weekly momentum charts, and also tracing out some daily negative divergences. On the daily, yields look like they might roll over after the huge move since August.

Stocks Inch to New Highs amid New Concerns

Stocks were generally higher on Wednesday morning, led by the Technology and Consumer Discretionary sectors, as investors awaited more details about the Biden administration's $2 trillion infrastructure improvement plan. On the employment front, payroll provider ADP said that U.S. private employers added 517,000 jobs in March, up strongly from a revised 176,000 in February. The reading missed the Bloomberg consensus forecast of 550,000, though it was still the strongest gain since September. The Dow was flat, the S&P rose 0.6%, and the Nasdaq rose 1.6%. Crude oil traded near $61 per barrel, while gold rose $19 to $1703 per ounce.

Wednesday was another disappointing day for stocks, as early gains evaporated. Market breadth fell off a cliff, finishing with NYSE decliners exceeding advancers by 350 issues after hitting a robust +1,700 earlier in the day. The Nasdaq (-2%), the Nasdaq 100 (-1.7%), and the Russell 2000 (-2.3%) once again bore the brunt of the selling, while the S&P 500 (-0.6%) continued to hold up better than the other indices.

We recently raised our rating on the Communication Services sector to Over-Weight. In this barbell sector, media and entertainment companies should benefit from robust online activity and the reopening of theme parks and movie theaters. Providers of telecom services should benefit from ARPU gains as the 5G rollout gains traction. The style mix of the sector is approximately one-third value and two-thirds growth. The adjusted pro-forma beta is approximately 1.1 (like the old telecoms), while the yield is 0.9% (reflecting the impact of Google and Facebook). The smoothed growth rate is 7% and the P/E ratio is 21x. The sector accounts for 11% of the S&P 500. We think investors should consider allocating 12%-14% of diversified portfolios to the sector. Here are some of our top picks.

Pricing pressures are starting to pick up -- primarily at the producer level -- and it should not be too long before more mainstream measures of inflation start to tick higher as well. Even so, we don't think the U.S. Federal Reserve is too worried at this time, and Chairman Powell has even said that the central bank is willing to let inflation rise above its 2% target in exchange for a continued decline in unemployment. We track 14 inflation measures on a monthly basis. On average, they indicate that prices are rising at a 3.8% rate, ahead of last month's reading, which was 2.3%. But drilling down to core inflation -- which we obtain by averaging Core CPI, market-based PCE Ex Food & Energy and the 10-year TIPs Break-even Interest Rate -- our reading is 1.7%, in line with last month's reading of 1.7%. The big increases in recent months have come at the producer level, as the PPI for intermediate-unprocessed goods, for example, is now 19% and the PPI for intermediate-processed goods is over 6.0%. Much of this price activity is driven by the recent recovery in commodity prices, including oil. The Federal Reserve's inflation forecasts call for a core inflation reading of 2.2% in 2021 and 2.0% in 2022.

Everyone is talking about the new $1.9 trillion fiscal stimulus plan instead. Meanwhile, U.S. debt levels have quietly and quickly grown over the past 10 years. Total U.S. debt is now more than 120% of GDP, according to the Office of Management & the Budget. That is the highest level since World War II. In the 1980s, the debt/GDP ratio was solidly in the 40% range, and moved up toward 60% by 2000. The debt level soared around 2010, as the government spent aggressively to brake the recession and rekindle growth. (According to Keynes, that's what the government is supposed to do.) Still, despite more than 10 years of economic growth prior to the pandemic, the debt level has only grown as a percentage of GDP. Now, in light of the fiscal spending to fight the impact of COVID-19, debt levels have surged. This is not a problem that has to be fixed today. After all, interest rates are low on an historical basis and policies to change the trajectory (less spending, more taxes) could push the economy into decline. But politicians should start to establish a plan to address the issue in the next 10-15 years. If not, the situation could result in hyperinflation or an inability for the government to address long-term problems such as rebuilding infrastructure or addressing climate change.

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, prior to the pandemic, had expanded to record levels. And now, the U.S. Healthcare industry is mobilizing to improve COVID-19 testing, treatments and vaccines. Consider that U.S. GDP was approximately $1 trillion in 1930 but nearly $22 trillion at the end of 2019. That's growth of 22-times. Meanwhile, the U.S. population has grown less than 3-times during that time span, to 320 million from 120 million. The delta between GDP growth and population growth has been driven in large part by innovation. In addition, the value of listed corporations on U.S. stock exchanges at the end of 2020 was approximately $32 trillion, representing 41% of global equity market capitalization, while U.S. GDP represented only 25% of global GDP. The current low level of interest rates (the benchmark 10-year Treasury bond yield is 1.1%) and the relatively high level of the dollar both attest to the confidence that global investors have in the innovative U.S. economy.

The stock market performed well during last week, as vaccine news and reopening news was generally positive. During Friday's session, the Dow Jones Industrial Average rallied 293 points, or 0.90%. The S&P 500 was up 0.10%, and the Nasdaq Composite fell 0.59%. For the week, the DJIA was up 1282 points, or 4.07%, the S&P 500 was up 2.64%, and the Nasdaq Composite was down 3.09%. Year-to-date, the DJIA is up 7.10%, the S&P 500 is up 4.99%, and the Nasdaq Composite is up 3.35%.

This is an absolutely crazy market! The growth indices were right on the edge of breaking down further after declines of almost 11%. But we got a little relief from long rates, so someone lit some Trinitrotoluene. (OK, we didn't know what TNT stood for either.)

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 Lazard Ltd. (LAZ); KLA Corp. (KLAC); Silk Road Medical Inc (SILK); Pinterest Inc (PINS) and the Focus List deletions are Citizens Financial Group Inc (CFG); Moderna Inc (MRNA); Verizon Communications Inc (VZ); Western Digital Corp. (WDC).

The U.S. economy added 379,000 jobs in January, ahead of expectations. The unemployment rate dropped to 6.2%. Most of the job gains occurred in leisure and hospitality, with smaller gains in temporary help services, healthcare and social assistance, retail trade, and manufacturing. Employment declined in state and local government, education, construction, and mining. The labor market continues to reflect the impact of the pandemic, as the shape and character of the workforce is changing. In February, 22.7% of employed persons teleworked because of the pandemic, up from 21.8% in November; this trend is likely to remain intact through 2021. The current number of jobs is 8.7 million lower than the February 2020 level. The civilian labor force is down 4.5 million from last February, as these workers have given up on finding jobs. On Thursday, the Labor Department reported that another 745,000 people filed initial unemployment claims, and the total of continuous claims was 4.4 million, down from 4.9 million a month ago. The data indicates that the employment environment, while improving, is still under stress -- a point Fed Chairman Powell made in a press appearance Thursday. We expect the unemployment rate will remain high, and the Federal Reserve will keep interest rates low, into 2022.

Several times of late, we have discussed the consistently strong market breadth, breadth that might well be too strong. We did see a breadth reset and recovery recently, but there are still some nagging divergences that must be addressed. Considering Monday's massive gains, it's a bit disappointing that breadth did not improve enough to eliminate these breadth non-confirmations.