Market Strategy: Domestics Spur the Bull Run
The following is an excerpt from John Blank's full Zacks Market Strategy report. To access the complete PDF, please click here.
November is upon us. The S&P 500 trades at a record high. October stock trading was torn apart by falling oil prices and a bond market liquidity scare. 2015 unfurls in front of us. Recent Q3 GDP data showed the U.S. economic outlook remains strong.
Should investors be scared about falling oil prices?
Think of cheap oil as more democratic stimulus going into 2015, vis-à-vis the advanced country “QE” stimulus across 2014. Benefits spread to any who use oil. Cheap oil will help global consumers come to life in the Xmas season. Shippers (trucks, airlines, railroads) can book bigger profits.
Cheap oil hurts energy suppliers. The loss to S&P 500 energy companies was palpable. The energy sector knocked $3 off the S&P 500 bottom-ups EPS estimate for 2014. It is $130 now, and no longer $133.
San Fran Fed Tackles Risks from Abroad
According to this month’s San Fran Fed writer, several risks exist for the U.S. outlook -- all from abroad.
A prospect for weaker demand from abroad is a primary theme. Read on.
Japan: Japan is growing more slowly after its consumption sales tax increase in April. Although Japan’s monetary policy has been highly accommodative, concerns exist about its ability to achieve its goal of 2% inflation and whether another tax increase scheduled for next year will derail the economy further.
China: Since 2011, China’s growth has been declining due to slower world growth, as well as efforts by Chinese policymakers to rely less on investment and exports and more on domestic consumption as an engine of growth. More recently, falling nationwide property and home sales have become an increasing drag on the economy, raising concerns about whether the country will meet its official target growth rate of 7.5%.
Europe: After emerging from its most recent recession in mid-2013, euro-area GDP growth has stalled. Low growth has been accompanied by extremely low inflation. Headline inflation slowed to 0.3% in September over the 12 months prior. This is well below the European Central Bank’s (:ECB) target of “below, but close to,” 2%. The euro-area’s disappointing performance has fueled uncertainty about its economic recovery and fears about the threat of deflation.
Strong U.S. Dollar: The recent appreciation of the dollar poses another risk to the U.S. outlook. Demand for the dollar has been spurred by weaker conditions abroad, global geopolitical tensions, and expectations that U.S. interest rates will rise in the next year. The appreciation of the dollar is likely to be a drag on U.S. net exports and growth, as well as dampen import costs and U.S. inflation.
Zacks Sector/Industry/Company Telescope
The strongest Zacks Ranked S&P 500 sectors are Health Care and IT. Transports (Air, Rail, and Trucks) look great. This month, notable analyst upgrades showed up in Health Care, Transports, Real Estate and Business Products.
(1) Health Care is upgraded to the top Very Attractive sector. The leader is Medical Care now. Medical Products and Drugs are upgraded to Attractive.
Featured Zacks #1 Rank Company: Addus Homecare (ADUS)
The company is a comprehensive provider of a broad range of social and medical services in the home. This includes personal care and assistance with activities of daily living, skilled nursing, and rehabilitative therapies, such as adult day care.
(2) Info Tech is the other Very Attractive sector. Look at Semiconductors, Telco Equipment and Computer-Office Equipment. There are signs of business cap-ex spending picking up, and the holiday season is here.
Featured Zacks #1 Rank Company: Benchmark Electronics (BHE)
The company provides contract electronic manufacturing and design services to OEMs in select industries, including medical devices, communications equipment, industrial and business computer, testing instrumentation and industrial controls.
(3) Financials are Attractive. Look into Insurance and Real Estate.
Featured Zacks #1 Rank Company: Jones Lang LaSalle Inc. (JLL)
This Chicago-based company is a leading full-service real estate firm that provides corporate, financial and investment management services to corporations and other real estate owners, users and investors worldwide.
(4) Industrials are a Market Performer, but the Transports are Very Attractive. The leaders here are Business Products, Airlines (after the fall in oil) and Railroads & Trucking.
(5) Telcos are Market Weight.
(6) Utilities are a Market Weight, too.
(7) Consumer Staples is a Very Unattractive sector. Stay away from Beverages, Soaps & Cosmetics and the Food industries.
(8) Consumer Discretionary is a Very Unattractive sector now. The exception is Apparel. Apparel looks Very Attractive after an oil price fall and the Xmas season.
(9) Materials are Unattractive. Stay away from Paper, Metals-Non-Ferrous and Chemicals. The exception is Building Products. That industry is hot.
(10) Energy is a Very Unattractive Sector. Coal is the worst-ranked sector across the board. The oil price cut hit all the other industries hard. Stay away.
This has been an excerpt from John Blank's full Zacks Market Strategy report. To access the complete PDF, please click here.
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