This edition features the continuing shift to software; biopharma capital allocation; rising ransomware attacks; and new coverage of Stem, Keysight, and Carlyle Group.

Stocks were mixed on Wednesday morning following more signs of sustained high inflation and solid earnings from JPMorgan and BlackRock. The Labor Department said that its consumer price index rose 0.4% in September, up from 0.3% growth in August and above the Reuters consensus forecast of 0.3%. Core consumer prices, excluding food and energy, rose 0.2%, in line with consensus expectations. Core prices also rose 4.0% from the prior year. The Dow fell 0.5%, the S&P fell 0.2%, and the Nasdaq rose 0.2%. Crude oil traded near $80.50 per barrel, while gold rose 2% to $1794 per ounce.

October is off to a rocky start. Investors took a disappointing jobs number as well as could be expected. While the absolute number of jobs gained was well under expectations, some economists believe the seasonal adjustment (related to limited return to classrooms in fall 2020) may have skewed the data, and that without adjustments the job tally would have been higher.

Of all the small- to mega-cap indices we follow, there are only two that are above their 50-day moving average: the Russell 2000 (IWM) by $0.30 and the S&P SmallCap 600 (SML). Yes, of late we have seen some relative outperformance from small-caps versus mega-caps. But it is certainly not enough to get us excited. Both the IWM and the SML remain in trading ranges going all the way back to March, about seven months ago.

The big banks are typically the first to report earnings, and those announcements are now beginning. The 2Q21 EPS season was one for the ages, with 96% year-over-year growth. The third quarter is expected to be strong, but not that strong, with the current consensus forecast calling for 29% growth. Factors behind the slowdown include: 1) a more-difficult comparison than the prior quarter, which was stacked up against the worst of the pandemic quarters; 2) the emergence of the Delta variant over the summer; and 3) troubles in the supply chain, which forced many companies to curtail production. Based on our multi-input model, which includes granular analysis of both sectors and quarters, we recently increased our estimate of S&P 500 earnings from continuing operations for 2021 to a rounded $191. Our revised 2021 EPS estimate assumes 38% growth from our static 2020 estimate. Off the higher 2021 base, and on the assumption that positive economic momentum in the pandemic-recovery year of 2021 can be carried forward, we have raised our estimate of S&P 500 earnings from continuing operations for 2022 to a rounded $214. Our revised 2022 EPS model assumes 14% growth from our 2021 estimate, in line with earlier expectations. Sectors that we expect to see lead 3Q21 growth include Energy and Financials.

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.

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 DuPont de Nemours Inc (DD); Hilton Worldwide Holdings Inc (HLT); Twilio Inc (TWLO); Corning, Inc. (GLW) and the Focus List deletions are LyondellBasell Industries NV (LYB); American Electric Power Co Inc (AEP); International Business Machine (IBM); T-Mobile US Inc (TMUS); Restaurant Brands Intl In (QSR).

October is off to a rocky start, although the market eked out a win last week. Investors took the disappointing jobs number as well as could be expected. While the absolute number of jobs gained was well under expectations, some economists believe the seasonal adjustment (related to limited return to classrooms in fall 2020) may have skewed the data, and that without adjustments the job tally would have been higher.

This edition features opportunities in the great outdoors; a smart but pricey water play; sustainable air travel; and notes from Align, Tesla, and Conagra.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

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.