Summer May Be Range-bound

May has come and gone and summer is here. It’s time to review the markets, the economy and stock strategy.

Time to Buy in June?

At Zacks, we’re onboard for a further rise under global QE. If the Fed taper hits early, look for a big sell-off. This fall downside risk puts a range-bound market into play for the summer.

Looking out 6 to 12 months, a majority of Zacks in-house strategists see the S&P 500 higher. In fact, it most likely will remain well above 1600 this summer.

With firm resolution of sequestration by September 30 on Federal fiscal year budgets; stronger housing markets; fresh evidence of policy activism in Europe; and firmer China growth; stocks go higher. Pessimists will point to Europe, China, or to a U.S. growth slowdown later in 2013. There could be pauses, a lull, and a possible correction.

Japan’s QE makes that much less likely.

A Fed View on the Economy

The San Fran Fed says the U.S. “continues to expand at a moderate pace.”

Ongoing federal deficit reduction will weigh on the recovery in the near term. So the San Fran Fed expects growth of only about +2¼% this year. They expect growth to pick up to about +3¼% next year as monetary policy remains accommodative and the forces restraining recovery ease somewhat.

Adverse forces include restrictive fiscal policy at home; the economic, fiscal, and financial situation in Europe; and the pervasive uncertainty that has been weighing on households and businesses.

Zacks Sector-Industry-Company Telescope

A few top-down Zacks Ranked ideas emerged in early June…

(1) U.S. momentum in the Finance Sector flows from the stock market and higher interest rates. Investment Funds, Investment Banking & Brokering, Real Estate and Insurance industries showed up even stronger in early June. This is the number one Zacks Sector right now.

A Company to Check Out:

Insurance Property & Casualty Industry – Alleghany Corp. (Y). Zacks Rank #1 with an Outperform Rating. Alleghany Corp. is engaged in the sale and underwriting of title insurance and other real estate services. The subsidiaries you know well are Chicago Title and Trust Company (CT&T) and Chicago Title Insurance Company (CTI),

(2) IT looks strong, with handheld drivers. Telco Equipment and Misc-Tech became the most attractive industries in June, with growth in smart phone Asia-Pacific. Computer Software & Services and Semiconductors ranked as market weight industries. Computer Office and Electronics Hardware fell to become underweight Zacks Ranked IT Industries.

A Company to Check Out:

Telco Infrastructure Industry – Crown Castle Int’l Corp (CCI). Zacks Rank #2. Houston-based Crown Castle International Corp. is a leading independent operator of wireless communication towers in the U.S. and Australia.

(3) Strength is building inside the Industrials sector on a stronger domestic outlook. Construction-Building Services, Transportation and Industrial Products & Services are very attractive. Machinery, Electrical Machinery and Pollution Control struggle the most.

A Company to Check Out:

Building Products Industry – Air/Heating – Lennox Int’l. (LII). Zacks Rank #2. Lennox International Inc. is a leading global provider of climate control solutions. The company designs, manufactures and markets a broad range of products for the heating, ventilation, air conditioning and refrigeration markets.

(4) Rising U.S. jobs numbers and upward 2013 jobs revisions helped the stock market stay near multi-year highs. In a positive feedback loop, the personal and home sides of Consumer Discretionary are highest ranked: Other Cons-Disc, Media and Home Furnishing-Appliance ranked at the top.

A Company to Check Out:

Internet Commerce Industry, IAC/Interactive Corp. (IACI). It is a Zacks Rank #1 with an Outperform Rating. IAC is an internet company with more than 50 brands serving consumer audiences across more than 30 countries.

(5) Utility-Gas Dist. and Util-Electric industries got upgraded into early June.

A Company to Check Out:

Chesapeake Utilities (CPK) is a small-cap niche stock. It has a Zacks Rank #2 with an Outperform rating. Chesapeake Utilities is engaged in natural gas distribution and transmission, propane distribution and marketing, advanced information services, and other related businesses in southern Delaware, Maryland’s Eastern shore and Florida.

(6) Weakness in international outlooks pushes down the Materials sector. Weakness was apparent in very low Zacks Industry Ranks for Steel and Metals-Non-ferrous. Chemicals and Paper were weak, too.

(7) Weaker gas at the pump prices played out within the Energy sector. We saw Oil-Misc. with its Refiners do best in the Zacks Ranks. Oil-Integrated and E&P are market weights. Coal and Pipelines are underweights. Alternative Energy and Drilling remain the most unattractive.

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