Market Outlook for 2024

We have an Under-Weight rating on the Energy Sector. Companies in the sector saw their earnings crushed in the last quarter and things looks bad for this quarter as well. Still, there are individual names we like and there is a trend of consolidation in the sector, all of which has piqued our interest. Exxon Mobil is buying Pioneer Natural and Chevron is buying Hess. We think this might prompt other big oil companies to look around as well. We think Conoco Phillips could be in the market to scoop up a smaller company (possibly Devon, EOG, or Marathon Oil). We don't think there will be any regulatory hurdles, as consolidation could lead oil prices to retreat, which would help the overall U.S. economy as inflation is still high in many areas. So it would seem to be in the government's interest to allow these deals to go through. Energy accounts for only about 3%-4% of total S&P 500 capitalization, but the sector often acts as a hedge to the broader market -- so having exposure to the group is important. Energy tends to zigs when the S&P 500 zags. Indeed, in 2022, the S&P 500 declined 19.4% while the Energy sector advanced 59%. In the August-October period of 2023, the S&P 500 fell more than 8% while the Energy sector declined only 3%. The following is a list of names we like overall in both Oil and Energy.

Stocks rose on Monday morning, led by the Communication Services and Financial sectors, as investors awaited the Fed's next interest rate decision and the October employment report later this week. On the earnings front, McDonald's shares rose after the company posted stronger-than-expected third-quarter sales and earnings. The Dow rose 1.0%, the S&P 0.6%, and the Nasdaq 0.7%. Crude oil fell sharply to $82.50 per barrel while gold rose $12 to trade near $2010 per ounce.

The U.S. Dollar Index has traced out a false breakdown and put an end to the rally in silver. Meanwhile, crude oil (WTI) is quietly rallying, popping 2.4% on Monday and finishing at $78.90/barrel. That is the highest close for WTI since April 19. More importantly, at least for a day, crude has busted a downward-sloping channel that has been in place since last October. Is this the end of WTI's bear market? It's probably a bit early to make that call, as we would like to see a higher high (above the April high of $83.26) to be more confident. WTI also closed above its 200-day average for the first time since August.

Monday Tee Up: Another Fed Hike?

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.

Earnings Season: A Little Better than Expected, But...

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 fell on Wednesday morning as investors weighed earnings reports from Microsoft, Boeing, and AT&T. Microsoft shares fell after the company posted mixed results and offered disappointing sales guidance for the current quarter, driven in part by a slowdown in the Azure cloud services business. On the positive side, AT&T shares rose 5% following better-than-expected fourth-quarter earnings and strong growth in wireless subscribers. The Dow fell 0.6%, the S&P 0.7%, and the Nasdaq 1.0%. Crude oil rose 1% to $81 per barrel, while gold traded near $1935 per ounce.

Stocks slumped throughout 2022, as the S&P 500 entered a bear market in June and closed 19% lower for the year. Value stocks generally outperformed during the year, as the Dow Jones Industrial Average fell 9% while the Nasdaq Composite dropped 33%. The leading sectors were value-oriented, such as Energy, Utilities, Consumer Staples, and Financial Services. The average stock in the Argus Universe of Coverage declined 13% during the year, and the median stock declined 15%. The average BUY-rated stock dropped 11%, while the average HOLD-rated stock fell 17%. Will investors continue to favor value in 2023? Will high inflation drive continued outperformance in Energy?

Stocks fell on Monday morning, reversing course after Friday's rally, as investors awaited the Fed's policy announcement and the October employment report later this week. In China, a COVID lockdown forced the closure of Shanghai Disneyland. Discontent with COVID restrictions also prompted workers to flee a Foxconn plant in China, disrupting the production of iPhones at the plant. The Dow fell 0.1%, the S&P 0.3%, and the Nasdaq 0.7%. Crude oil traded near $87 per barrel, while gold fell $4 to $1641 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.

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.

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 in volatile trading on Wednesday morning, extending Tuesday's rally, as major companies continued to report second-quarter results. Netflix shares rose 4% after the company posted above-consensus 2Q earnings and lower-than-expected subscriber losses. Johnson & Johnson shares edged higher following stronger-than-expected results, though management lowered its full-year sales and earnings guidance. The Dow rose 0.2%, the S&P 0.7%, and the Nasdaq 1.5%. Crude oil fell $2 to $102.50 per barrel, while gold fell $4 to $1707 per ounce.

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.

Stocks were mixed on Wednesday morning as investors weighed another round of 1Q earnings reports and new housing market data. Netflix shares plunged more than 35% after the company posted a decline in net subscribers in 1Q and projected further losses in the second quarter, while Procter & Gamble rose more than 2% following better-than-expected fiscal 3Q results and an increase in its full-year sales guidance. On the housing front, the National Association of Realtors said that U.S. existing home sales fell 2.7% to a seasonally adjusted annualized rate of 5.77 million units in March, below the Reuters consensus forecast of 5.80 million. The Dow rose 1.0%, the S&P rose 0.5%, and the Nasdaq fell 0.3%. Crude oil rose 1% to $103.50 per barrel, while gold fell $4 to $1956 per ounce.

Stocks stumbled early in 2022. Growth stocks were the weakest, as Technology, Communication Services, and Consumer Discretionary underperformed. Leading sectors tended to be value-oriented, including Energy, Financial, and Utilities. The average stock in the Argus universe declined 2% in 1Q22, and the median stock declined 4%. The average BUY-rated stock dropped 3.2%, while the average HOLD-rated stock gained 1.4%. Will investors continue to favor value? Will high inflation drive continued outperformance in Energy and Materials? Given interest rates that remain historically low, we expect growth stocks to outperform over time and believe that 2022 simply may be the one-in-five years that value leads. Investors seeking value are encouraged to focus on dividends and yields in the 3%-4% range. Our current Over-weights sectors are Energy, Financial, Healthcare, Industrials, and Materials.

We recently raised our rating on the Energy sector to Over-Weight from Market-Weight. Already strong demand for petroleum products (related to global reopening) is now exacerbated by the war in Ukraine, which has led to broad sanctions on Russia and may exclude this major supplier from the global energy markets. Although we expect other counties to add to supply, we expect energy prices to remain elevated at least through year-end. Energy accounts for 3.6% of S&P 500 market cap; over the past five years, the weighting has ranged from 2% to 10%. We think investors should consider allocating 4%-5% of diversified portfolios to the group. The sector is outperforming thus far in 2022, with a gain of 32.3%. It also outperformed in 2021, with a gain of 47.7%. It underperformed in 2020, with a loss of 37.3%, and in 2019, with a gain of 7.6%. Here are some of the Energy sector companies that are on our BUY List. Some also are featured in our model portfolios (Growth & Income, Equity Income, Growth, and Institutional) and in our Focus List.

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 plunged again on Tuesday morning after their wild swing on Monday amid continued interest rate concerns, mixed 4Q earnings reports, and the standoff with Russia over Ukraine. The IMF lowered its 2022 global economic growth forecast by 0.5 percentage points to 4.4%, reflecting a weaker outlook in both the U.S. and China. The IMF now projects 4.0% growth in the U.S. this year, down from its prior forecast of 5.2%. The Dow fell 1.4%, the S&P 2.2%, and the Nasdaq 2.8%. Crude oil rose to nearly $85 per barrel, while gold rose $5 to $1847 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.

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.

Our bond/stock asset-allocation model indicates that stocks and bonds -- both of which are overvalued against their own metrics -- are near fair value against each other. Our model takes into account current levels and forecasts of short-term and long-term fixed income 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 0.15 sigma, with a standard deviation of 1.0. The current valuation level is 0.12 sigma premium for stocks. The model has done a good job of highlighting asset class 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. The model indicated that stocks were at a sharp premium to fair value compared to bonds prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession. In 2009, the model favored stocks over bonds -- another good call. Markets can manage with premiums and discounts for extended periods. But the current high valuation on stocks leaves little room for disappointment. Our recommended asset allocation for moderate accounts is 70% growth assets, including 65% equities and 5% alternatives; and 30% fixed income, with 200 basis points of the bond allocation in cash.

After September's nearly 5% decline, the S&P 500 is off to the races in October. From a sector perspective, early fourth-quarter leadership remains with the year's winners. Energy is out in front, with a 9% gain in just two weeks of 4Q21 trading; that has pushed the sector's market-leading annual gain past 53%. There's a long climb back for Energy, which fell 40% in 2020.

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.

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 fluctuated near breakeven on Thursday morning amid a new round of earnings reports and weekly employment data. The Labor Department said that first-time claims for state unemployment benefits rose to 419,000 for the week ended July 17, up from 368,000 a week earlier and above the consensus forecast of 350,000. The Dow fell 0.2%, the S&P was flat, and the Nasdaq rose 0.2%. Crude oil rose slightly to $71 per barrel, while gold traded near $1807 per ounce.

The stock market moved lower last week, then rallied on Friday, ultimately finishing flat-to-down. Tech stocks and blue chips performed similarly, with tech narrowly outperforming. During Friday's session, the Dow Jones Industrial Average increased 228 points, or 0.67%. The S&P 500 was up 1.09%, and the Nasdaq Composite was up 1.44%. For the week, the DJIA was down 0.46%, the S&P 500 was up 0.13%, and the Nasdaq Composite was down 0.25%. Year-to-date, the DJIA is up 11.23%, the S&P 500 is up 11.29%, and the Nasdaq Composite is up 8.76%.

Fourth-Quarter 2020 Summary & Market Outlook for 2021

Stocks rose on Tuesday morning amid hopes for a resolution of the fiscal stimulus stalemate, as House Speaker Nancy Pelosi set Tuesday as the deadline for any pre-election deal with Senate Republicans. Meanwhile, the Justice Department filed a major antitrust lawsuit against Google, and the Commerce Department reported new housing market data. Housing starts for single-family homes rose a strong 8.5% in September, to an annualized 1.108 million units, while starts for multi-family housing fell 16.3% to an annualized 307,000 units. The Dow rose 0.4%, the S&P 0.4%, and the Nasdaq 0.1%. Crude oil traded near $40.50 per barrel, while gold rose $2 to $1913 per ounce.

Stocks rose on Tuesday morning amid hopes for a resolution of the fiscal stimulus stalemate, as House Speaker Nancy Pelosi set Tuesday as the deadline for any pre-election deal with Senate Republicans. Meanwhile, the Justice Department filed a major antitrust lawsuit against Google, and the Commerce Department reported new housing market data. Housing starts for single-family homes rose a strong 8.5% in September, to an annualized 1.108 million units, while starts for multi-family housing fell 16.3% to an annualized 307,000 units. The Dow rose 0.4%, the S&P 0.4%, and the Nasdaq 0.1%. Crude oil traded near $40.50 per barrel, while gold rose $2 to $1913 per ounce.

Stocks were mixed on Tuesday morning as investors weighed a new round of earnings reports, rising coronavirus cases, vaccine news, and prospects for additional fiscal stimulus from Congress. On the earnings front, IBM shares rose after the company posted better-than-expected 2Q results, driven by strength in Cloud revenue. Coca-Cola rose more than 3%, despite lower revenue and earnings, after management said that 2Q would be the most challenging quarter of the year and projected improving demand in the second half. The Dow rose 1.2%, the S&P rose 0.7%, and the Nasdaq fell 0.2%. Crude oil traded near $42 per barrel, while gold rose $21 to $1839 per ounce.

Stocks were mixed on Tuesday morning as investors weighed a new round of earnings reports, rising coronavirus cases, vaccine news, and prospects for additional fiscal stimulus from Congress. On the earnings front, IBM shares rose after the company posted better-than-expected 2Q results, driven by strength in Cloud revenue. Coca-Cola rose more than 3%, despite lower revenue and earnings, after management said that 2Q would be the most challenging quarter of the year and projected improving demand in the second half. The Dow rose 1.2%, the S&P rose 0.7%, and the Nasdaq fell 0.2%. Crude oil traded near $42 per barrel, while gold rose $21 to $1839 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.

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.