The following is an excerpt from John Blank’s latest monthly Market Strategy article. To view the entire PDF, just click here.
U.S. Market Outlook
I wrote last month the U.S. bull is old, but not dead. Boy was I right! We saw a big +7.5% surge in stocks in October.
Maintain a long-term perspective. Fall markets like to rally. 2013 saw +32% returns. Fed QE bond buying was huge. In 2014, U.S. stocks rose +12% on a last pop from U.S. QE. 2015? Low rates via Europe strengthened the USD.
Stocks had to see some major profit taking, after 3 years rising on a trend. The Fed? It hikes rates 25 bps in Dec and 25-50 bps in 2016. Remember: In an election year, the Fed likes to stay sidelined.
What compels my U.S. optimism? Plentiful U.S. job hiring is first and foremost. The recent rise in indexes sows stock wealth, and it stokes discretionary spending. Structural demand builds in Health Care, Housing and Consumer spaces.
How about my pessimism? I see strong dollar issues, and global growth weakness implied by Nov. WTI oil trading around $45 a barrel. Analysts forecast a rise on oil prices to $60 late next year as a base case. Yet overcapacity in Energy, Materials and Industrials means cutbacks now.
The net? Flat growth.
Is it time to buy the U.S. in early November?
You missed your broad alpha opportunity last month. This month, be selective. The S&P 500 should be able to finish the year between 2100 and 2200.
Zacks Sector/Industry/Company Telescope
If you think cyclical sectors are dead fish, think again. They are leading the way.
Strength seen in the November Zacks Ranks for Consumer Discretionary hasn’t been this clear a signal all year. Not one Discretionary industry is Unattractive. That is saying something about U.S. stocks. Stay bullish on cyclicals! However, November Zacks Ranks also say ‘stay away’ from Energy and Materials stocks.
(1) Consumer Discretionary tops the list. The sector is Very Attractive across the board. Look at the industries of Apparel, Consumer Electronics and Other Consumer Disc. They are very strong. Non-food retail, Publishing, Leisure & Appliances are strong.
Zacks #1 Rank stock to look at: O’Reilly Automotive (ORLY)
O'Reilly Automotive, Inc. is a specialty retailer and supplier of automotive aftermarket parts, tools, supplies, equipment and accessories to both do-it-yourself customers and professional mechanics or service technicians.
(2) Health Care falls to Attractive from Very Attractive. The Drugs and Medical Care companies are the big areas to look for stocks.
Zacks #2 Rank stock to look at: VCA (WOOF)
VCA Inc. is a national animal healthcare company operating primarily in the United States and Canada. It owns, operates and manages veterinary hospitals and veterinary-exclusive clinical laboratories in the country, supplies diagnostic imaging equipment and other medical technology products and related services to the veterinary industry, and provides various communication, professional education and marketing solutions to the veterinary community.
(3) Info Tech stays Attractive. Look at the Semiconductors first and foremost, followed by Computer-Software Services and Electronics.
Zacks #2 Rank stock to look at: Cognizant Technology Solutions (CTSH)
Cognizant Technology Solutions delivers high-quality, cost-effective, full life cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These services are delivered through the use of a seamless on-site and offshore consulting project team.
(4) Telco Services gets to Attractive. Cellular use is leading the way.
(5) Utilities get to Attractive. The leader among all Zacks Industries is, surprisingly, Utilities-Water Supply. Utilities-Electric Power is also strong.
(6) Financials remain a Market Weight. The leader is Real Estate. The Major Banks, Investment Funds, Investment Brokers and Consumer Finance companies hold the sector back.
(7) Industrials remain a Market Weight. The leaders are Airlines, Aerospace & Defense and Business Products. Machinery and Electrical Machinery industries lag most.
(8) Consumer Staples remain Unattractive. The strong spot, and there is one, is Soaps & Cosmetics. Food/Drug/Retail, Beverages and Agri-business are the big laggards.
(9) Materials go to Very Unattractive. The worst areas are Steel, Metals Non-ferrous and Chemicals.
(10) Energy looks Very Unattractive. The weakest of all are the Drillers. The integrated Oil & Gas companies look very weak too. The only strength is Energy-Alternatives.
This is an excerpt from John Blank’s latest monthly Market Strategy article. To view the entire PDF, just click here.
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