The following is an excerpt from John Blank's latest Market Strategy Report. Click here to access the full PDF.
December is Here!
Small gift-buying stirs the season. Yet, that’s not what keeps stocks rising. Visible U.S. share buying is typical seasonal performance-chasing by mutual fund managers. Late-year markets like to stage a Santa Claus rally.
Look 3 years back to fully grasp current S&P 500 valuations:
- 2013 saw +32% returns. U.S. QE-reflated stocks.
- In 2014, U.S. stocks rose +12% on a last pop from U.S. QE.
- In 2015, QE ramped up in Europe and Japan. On top of that, a Chinese renminbi re-set, and EM fear and recessions strengthened the U.S. dollar more.
Hence, S&P 500 annual returns are near zero.
What compels visible U.S. optimism?
Plentiful U.S. job hiring and better U.S. wages build confidence. Stock wealth. demographics and policy build Health Care. House buying is stronger. U.S. stocks also saw sudden algo-machine-assisted selling in August. This lowered valuations as winter approached, and put a correction in play for the first time in 3 years.
What’s alive for pessimists?
Strong dollar issues shoot U.S. manufacturing competiveness. Saudi production decisions pushed Dec. WTI oil to $40 a barrel. All of 2016 looks pathetic for oil producer profits. The net? — Flat U.S. GDP growth and meager all-in S&P 500 EPS growth. Worries about a high-yield blowup in Energy spook the outlook for bank Financials.
Is it time to buy the U.S. in early December?
It’s a mixed picture.
The Latest Zacks Sector/Industry/Company Telescope
December Zacks Industry Ranks show wireless-IT and small discretionary spending holding up. Apparel and misc. spending keeps the U.S. consumer humming. Small purchases matter the most at Xmas!
Semiconductors remain strong. Notably, the Energy sector rose to a Market Weight. Alternatives are tops. Drillers lag, but all other Oil & Gas sectors moved up. Now may be the time to investigate Oil & Gas… or is it still too early? Financials have only Real Estate at Attractive. A flat returns stock market is holding back anything investment related.
(1) Consumer Discretionary tops the list again at Very Attractive. The sector is Very Attractive across the board. Look at the industries of Apparel and Other Consumer Disc. They are very strong. Non-food retail, Publishing, Autos, & Leisure & Appliances are strong.
Top Zacks Stock to Look at: FTD Company (FTD)
FTD Companies, Inc. operates as a floral and gifting company. The Company provides floral, gift and related products and services to consumers, retail florists, and other retail locations primarily in the U.S., Canada, the U.K., and the Republic of Ireland. Its portfolio of brands also includes Flying Flowers, Flowers Direct, and Drake Algar in the U.K.
FTD Companies, Inc. is headquartered in Downers Grove, Illinois.
(2) Health Care stays Attractive. However, Medical Care and Medical Products companies are top areas to look for stocks. Drugs less so.
Top Zacks Stock to Look at: Amsurg Corp. (AMSG)
AmSurg Corp. is in the business of developing, acquiring and operating practice-based ambulatory surgery centers, in partnerships with physician practice groups, throughout the United States. An AmSurg surgery center is typically located adjacent to or in the immediate vicinity of the specialty medical practice of a physician group partner's office.
Each of the surgery centers provides a narrow range of high volume, lower-risk surgical procedures, generally in a single specialty.
(3) Telco Services stays Attractive. The big leader is Telco Services. Cellular use is leading the way.
Top Zacks Stock to Look at: AT&T (T)
AT&T Inc. is a premier communications holding company. Its subsidiaries and affiliates, AT&T operating companies, are the providers of AT&T services in the United States and around the world. Among their offerings are the world's most advanced IP-based business communications services, the nation's fastest 3G network and the best wireless coverage worldwide, and the nation's leading high speed Internet access and voice services.
(4) Utilities stay Attractive. Water Supply and Electric Power look best.
(5) Info Tech falls back to Market Weight. Look at Semiconductors. Computer-Software Services and Misc. Tech sit at market weight.
(6) Energy rises to Market Weight. Strength is Alternatives. Weakest are Drillers.
(7) Financials remain a Market Weight. The sole leader is Real Estate. Insurance, Investment Funds, Investment Brokers hold the sector back. These weak finance industries show what the weak stock market is doing.
(8) Industrials fall to Unattractive. The leaders are Airlines and Aerospace & Defense. Pollution Control and Metal Fabricating industries lag most.
(9) Consumer Staples remain Unattractive. No strong spot. Tobacco, Soaps & Costmetics, and Food & Drug Retail are market. Agri-business is the biggest laggard across the board. That shows the depressing effects of agricultural surpluses early this winter.
(10) Materials stay Very Unattractive. The worst areas are Steel, Metals Non-ferrous, and Chemicals again.
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