Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022. That's a recent rarity, as for the past decade-plus, the performance record has favored growth. But in 2022, The rollout of COVID-19 vaccines gave a lift to some of the cyclical companies (energy and regional banks) that had lagged in recent quarters, and value stocks outpaced growth stocks that year. While growth stocks have retaken the lead since 2023, the Federal Reserve continues to keep interest rates high to fend off inflation. This could possibly cap multiple expansion for growth companies in coming quarters. In any event, the value sector is the place to achieve income.

After retracing 38.2% of its rally from April until August 5, the iShares 20+ Year Treasury Bond (TLT $97.53) continues to trace out what appears to be a bullish pennant formation. Price action along the entire yield curve has been subdued of late as the market awaits additional data before its next move. In the near term, chart resistance from the recent high is up at $100. Just below current levels, chart support and the rising 50-day exponential moving average both lie in the $94/$95 zone, and a 50% give-back comes in at $93. Trendline support off the lows since April sits at $94 looking out a week, with a 61.8% retracement near $91.50. Besides the bullish short-term chart pattern (as pennants and flags are usually continuation formations that resolve themselves in the direction of the prior move), there are additional factors that spark our interest. We really like when multiple pieces of technical data line up, this as it raises the probability that our call will be correct. The COT data toward the two-, five-, and 10-year Treasuries are all bullish -- with the smart-money commercial hedgers net bullish their futures positions by a large margin, while the large speculators (hedge funds) are net short futures to a large degree. Sentiment toward the five- and 10-year Treasury is very bearish despite the four-month rally. Neither the COT data nor sentiment is doing what it usually does, as the COT data generally will get more bearish as prices rise and sentiment will get more bullish as prices rise. This combination certainly leans towards more gains in bond prices. (Mark Arbeter, CMT)

Let us say this. At intermediate-term bottoms and tops, there is almost always a day or two when the market tries to trick you into thinking that there certainly will be a lower low during a decline and a higher high during an uptrend. We mention this as Wednesday might have been one of those days that makes you think lower lows are certain -- and they still might. But on Thursday, the market was destroying the bears. That said, Thursday also begs the fact that the price action from one day is usually insignificant. And some of the best rallies occur during intermediate- to long-term declines. Confused yet? One disturbing piece of the puzzle in looking for a potential bottom is the lack of fear in certain market-sentiment gauges. The five-day CBOE equity-only put/call ratio has risen, but we have not seen the expected spike into extreme bearish territory. On a daily basis, we have not printed one day of extreme fear since April -- and considering the velocity of this move lower, that is more than shocking. The NAAIM Exposure Index (compiled yesterday, so a very up-to-date reading) fell to only 75% from 84%. That is stunning as we expected exposure to fall dramatically after the recent price action. Maybe this is a great read on exposure, with so many on vacation. Combining put/calls with exposure creates a heavy smell of complacency. We saw panic in the volatility index Monday but high levels of complacency in the equity-only P/C and NAAIM exposure. That's very confusing sentiment data! (Mark Arbeter, CMT)

Summer Shakeout amid Positive EPS Season The stock market in mid- to late-July experienced its worst stretch of the year, including its worst week since 2022. The strong start to the month sent the S&P 500 and the other major indices to all-time highs. Even following the late-month selloff, stocks entered the final partial trading week of July barely changed for the month. The stasis in the market is consistent with ongoing uncertainty. The nature of the presidential election changed dramatically over the past month. The Fed appears to be teeing up 50 basis points (bps) or possibly even 75 bps of rate cuts by the end of the year. However, no cuts appear likely until mid-September, leaving investors dangling. Consumers too are waiting for rate cuts, whether they know it or not, because a lower fed funds rate is the linchpin to getting the overall interest rate environment down from its multi-year peak. Amid the uncertainty, the second-quarter earnings season mostly has been a bright spot. While good past-quarter earnings are always important, investors hold their breaths regarding current-quarter outlooks. Companies have generally reaffirmed the moderately positive outlook for the full year, which is still trending toward high single-digit to low double-digit EPS growth for 2024. Up and Down in July The S&P 500, which came into mid-year up 14.5% for 2024, piled on an additional 3.8% in the first half of July. The index was up 18.8% for the year at its all-time closing peak of 5,667 on 7/16/24. By 7/19/24, the S&P 500 had shed over 100 points. And by 7/25/24, the index had lost more than 260 points from its all-time high, to close at 5,399. Given the strong start to the month, followed by equally strong selling, the S&P 500 entered the final partial trading week of July up 14.4% for the year - barely budged from where it stood at mid-year. The Trump assassination attempt and the switch in Democratic presidential contenders occurred in the space of two weekends. However, rather than point to political upheaval, most investors attributed the July selling to a much-needed correction in extremely overbought names in the Information Technology and Communication Services sectors. While some wealth flowed out of all equities in the late-July period, much of the proceeds from tech stock redemptions flowed into other sectors. With three trading days remaining in the month as of 7/26/24, Information Technology (IYW) was down 4% for the month of July; and Communication Services (XLC) was down just under 2%. Where did the money go? Lots flowed into the Financial sector (IYF), which was up 7% for the month. Upcoming cuts in the fed funds rate will pinch banks' net interest margins. However, the 2Q earnings season for the sector has been highly positive, featuring significant recovery in fee-based businesses such as investment banking. Those upcoming lower interest rates can also be expected to rekindle loan and mortgage growth, which have been an ongoing negative amid generally positive bank earnings results. Other winning sectors in July include Industrials (IYJ), up 4.5%; Utilities (IDU), up 3.3%; Healthcare, up 2.9%; Consumer Staples, up 2.5%; and Materials, up 2.4%. Most of these sectors rose with the market early in the month and then were able to hold onto their gains on generally positive second-quarter earnings results. As we prepared this report, the market on 7/29/24 was oscillating, rising in the morning on earnings optimism toward traditional growth leaders and then selling off by midday on fears those companies would disappoint. The market response to upcoming earnings and other major non-technology companies could determine not just the July outcome, but also the market's performance in August and into summer-end. Second-Quarter Earnings Season The above-cited July 29-through-August 2 period will be the biggest week in 2Q24 EPS season, with about one-third of S&P 500 components companies reporting results. We will be sure to weigh in on the biggest earnings week, which culminates with equally big economic news, the nonfarm payrolls for July on 8/2/24. In the interim, and based on 2Q24 EPS data through 7/26/24, the second-quarter earnings season has been a success so far. With just over 180 companies (36%) of S&P 500 component companies reporting, second-quarter 2024 earnings from continuing operations are up 9.1% on a share-weighted basis compared with 2Q23 EPS. According to Bloomberg, 2Q24 earnings are up 14.8% on a market-cap-weighted basis. This premium of market-cap-weighted to share-weighted EPS growth is consistent with recent quarters and is reflective of the earnings outperformance of the largest capitalization companies compared with small and mid-caps. According to the other earnings compiling agencies, FactSet reports 9.8% earnings growth for 2Q24 as of 7/26/24; and Refinitiv is reporting 12% earnings growth. Variation in performance measurements among FactSet, Refinitiv and Bloomberg reflect minor differences in calculating continuing operations earnings as well as different prior-year baselines. For the remainder of our 2Q earnings report card, we will mainly source Bloomberg data unless otherwise noted. An unusually high percentage of companies (31%) have reported negative earnings for 2Q24. The average EPS decline for the negative-earnings group, which is heavily weighted in Energy, Materials, and Real Estate, is 16%. For the 69% of companies reporting positive EPS, average earnings growth is a robust 22%. A key reason investors are optimistic about second-half 2024 earnings growth is that the negative drag from Energy, Materials, and Real Estate is expected to diminish in 3Q24 and particularly in 4Q24. About 79% of companies have reported positive EPS surprises in 2Q24, compared with (again) a high 14% of companies reporting negative surprises. According to FactSet, 78% of companies have reported positive EPS surprises. These percentage are above the 10-year average of 74%. For these companies, the median beat against consensus estimates is 5.2% (FactSet has it at 4.4%). For the first time in several quarters, the median beat against expectations is below the 10-year average of 6.8%. At the sector level, the strongest earnings growth is coming from Financial, Information Technology, and Utilities - all up in the 16%-17% range year over year. Communication Services 2Q24 earnings are up 15%. Other sectors reporting positive EPS growth include Healthcare, Consumer Discretionary, Consumer Staples, and Industrials, in descending order; all are up in the 2%-4% range. As noted, Energy, Materials, and Real Estate are all down; Materials is off in high single-digits, while Energy and Real Estate earnings are down 20%-21% from a year earlier. From a statistical standpoint, 36% would be considered a fairly reliable and predictive sample size. Timing of the remainder of 2Q24 earnings season, however, may introduce some variability. Over 61% of Financial companies have already reported, in what has been a better-than-anticipated season for the sector. Only 23% of Energy companies have reported; given similar sensitivity off all component companies to key commodities (oil and natural gas), the contribution from this sector will likely continue to pull down overall results. The swing sector is likely to be Information Technology. Fewer than 30% of tech companies have reported. Further, 2Q earnings from the heavy hitters (Apple, Microsoft, etc.) are not reflected in the data discussed above. Earnings from the big Healthcare, Industrial, and Consumer Discretionary (AMZN) companies could also play an outsized role. For 2Q24, Argus continues to model high-single-digit continuing-operations EPS growth for S&P 500 component companies. We see a higher likelihood that our forecast misses on the upside than on the downside. In other words, once all the component companies are tallied, we are more likely to see low-double-digit EPS growth for 2Q24 than we are to see mid-single-digit EPS growth. Conclusion Investors will veer away from earnings analysis for a few hours on the morning of 8/2/24 to assess the state of the labor economy. Argus Chief Economist Chris Graja, CFA, forecasts 185,000 new nonfarm payroll jobs for July, approximately in line with the 188,000 consensus forecast. The bigger focus will be on the unemployment rate, which was 4.1% in June. If July unemployment hits 4.2%, that would trigger the Sahm indicator. When unemployment rises 50 bps within a cycle, the Sahm rule posits, recession follows or has already begun. In this scenario, deteriorating labor markets become 'a self-reinforcing feedback loop,' according to former New York Fed president William Dudley. Secular and demographic factors may argue for structurally lower unemployment rates over the long term. This includes ongoing retirements from within the huge Baby Boomer cohort, and a smaller pool of workers from the generational cohorts that follow available to fill vacant boomer positions. Triggering the Sahm rule, nonetheless, would be a warning sign and presumably a wake-up call for the Fed to focus on the fight in front of it (preventing recession) and not the nearly won war against inflation.

There has been a little of everything in the past two weeks, from a five-day wipeout in the previously loved semiconductor industry, taking out almost 10%, to a massive rally in the heretofore hated small-caps, adding 11.5%. We've also seen a number of breadth thrusts, which usually occur at the beginning of a new uptrend, as well as a breakout to minor all-time highs for gold. There was also the attempted assassination of former president Trump. Finally, this morning brings news of a global technology outage and, of course, more earnings news. Thursday could have been worse if not for some late buying that pushed the indices off recent pullback lows. The S&P 500 lost 0.8% and is down 2.2% over the past two days, but found intraday support yesterday from its 21-day exponential average -- just as it did during the minor pullback in late May. The greater damage has been elsewhere, with the Nasdaq giving up 4.2% over the past six days and the Nasdaq 100 (QQQ) down 4.7% over the same period. Both have given up their 21-day exponential averages for the first time since April, but neither has broken their prior closing low from June 24. Their uptrends off the lows since April have given way on a minor basis and the 21-day rate-of-change for the QQQ has dropped into negative territory. In addition, we have seen minor and bearish 5/13 exponential moving average crossovers for the Nasdaq and the Nasdaq 100. Because of the size of the mega-cap rallies since early 2023, we think there is a greater probability that the current pullback could last into August and September, which is generally a weak seasonal time of year for stocks. (Mark Arbeter, CMT)

Stock markets are muted today. Certain financial press headlines have focused on a weak manufacturing report as reason for the Federal Reserve to cut interest rates -- but there has been no significant response in overall share prices. Some stocks on the NYSE showed massive losses earlier in the session, but the drops were attributed to a technical glitch at the NYSE that has since been resolved. The yield on the 10-year Treasury note is down nine basis points to 4.42%, oil is down 3% to $74 per barrel, and Bitcoin is up 1%.

While the major indices paused Wednesday in advance of important quarterly reports from mega Technology names, we will look at the technical condition of the largest holdings in the Nasdaq 100 (QQQ). Of note, after the close, META reported and is down over13% ahead of the open today.

U.S. stocks fell on the CPI report that showed hotter-than-expected inflation data. Headline CPI rose 0.3% in January, up from 0.2% in December and above the consensus estimate of a 0.2% increase. Core CPI rose 0.4%, up from last month's 0.3% increase. These latest readings bring the annual rate of headline CPI to 3.1% and core CPI to 3.4%, down from 3.4% and 3.9%, respectively. The S&P 500 fell 1.1%, the Dow 1.1% and the Nasdaq lost 1.3%. Crude oil traded near $78 per barrel and gold fell $26 to $2007 per ounce.

Stocks fell on Thursday morning as investors weighed a new round of earnings reports and weekly employment data. Walmart shares fell nearly 8% despite strong 3Q results after the company warned of a slowdown in consumer spending. Network gear maker Cisco also fell sharply after lowering its FY24 guidance. On the employment front, first-time claims for state unemployment benefits rose by 13,000 to a seasonally adjusted 231,000 for the week ended November 11, above the Reuters consensus of 220,000. The Dow fell 0.4%, the S&P 0.1%, and the Nasdaq 0.1%. Crude oil fell sharply to $73 per barrel, while gold jumped $22 to $1986 per ounce.

Stocks were mostly lower on Friday morning following higher-than-expected producer price data. The Labor Department said that its producer price index for final demand rose 0.8% from the prior year in July, up from 0.2% in June and above the Reuters consensus forecast of 0.7% growth. Excluding food, energy, and trade services, the core PPI rose 2.7% from the prior year, in line with the increase in June. Meanwhile, the University of Michigan said that its preliminary consumer sentiment index slipped to 71.2 in August, down slightly from 71.6 in June but in line with the consensus forecast. The Dow rose 0.1%, the S&P fell 0.4%, and the Nasdaq fell 0.9%. Crude oil rose less than 1% to $83.50 per barrel, while gold rose slightly to $1949 per ounce.

Monday Tee Up: Is Inflation Slowing?

Monday Tee Up: Heavy on Earnings, Light on the Economy

Monday Tee Up: Big Retail Earnings

Wednesday was a nice change of pace from the drudgery of falling stock prices, skyrocketing rates, and the soaring U.S. dollar. In a well-timed release (as SPX futures were getting hit overnight, and the greenback was higher, and strategists were worried that the gilt market would seize up, and many markets were stretched), the Bank of England came to the rescue. The BOE said that it was buying unlimited amounts of long-dated bonds to help stabilize markets after gilt yields soared and the pound slumped to a record low in the wake of last Friday's U.K. budget announcements. The BOE also postponed a planned sale of gilts for next week.

The major stock indices passed a key test late last week as they all held important support. For the S&P 500, a 61.8% retracement of the rally off the June lows targeted 3,900 -- and last week's low was 3,904. As well, a measured move based on the small head-and-shoulders top came in at 3,910. A 61.8% giveback for the Nasdaq was 11,564 (last week's low was 11,547), and for the QQQs, the same retrace targeted 293.84 (with the intraday low last week at 293).

Monday Tee-Up: Housing, Consumers, Manufacturing

onday Tee-Up: Housing, Consumers, Manufacturing

We talked about small caps a few times back in July. After holding key support, they rallied nicely and have outperformed the S&P 500 since May -- albeit by a small margin -- after steadily underperforming the "500" since February 2021. The Russell 2000 (IWM) and S&P SmallCap 600 (SML) peaked in November 2021. IWM broke its bear-market channel last week while the SML is very close. The "2000" has rallied by 18% from its June 16 low, retracing 38.2% of its bear market; the "600" has tacked on 15%, retracing a bit more. On June 16, the IWM was down 32% while the SML was off 26%.

Literally everything seems to be going against the stock market. Rising yields across the curve, a strong dollar (which no one seems to be talking about), surging crude oil prices along with gasoline and heating oil, and a Fed that must start taking liquidity out of the system. Oh, and let's not forget about the war, continued supply issues, and stubborn inflation. Did we miss anything? Ah, yes. A breakdown in mega-growth stocks, an absolute collapse in hyper-growth stocks, a massive drawdown in cryptos, and broad economic worries.

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.

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.

The stock market kicked off February with a winning week, though 2022 remains deeply in the loss column. On Friday, the Dow Jones Industrial Average edged down by 21 points, or 0.06%. The S&P 500 was up 0.52%, and the Nasdaq Composite rose 1.58%. For the week, the DJIA was up 364 points, or 1.05%, the S&P 500 was up 1.55%, and the Nasdaq Composite was up 2.38%. Year-to-date, the Dow is down 3.44%; the S&P 500 is off 5.57%; and the Nasdaq Composite is on the edge of correction territory, down 9.89%.

As major stock indices trade near all-time highs and the VIX volatility index rests near its lowest level since the start of the pandemic, the volume of insider transactions has risen to the highest level since early September. The snap-back in volume is not surprising given pent-up demand from the recent earnings hiatus. Furthermore, after a year of impressive returns for the stock market, executives, directors, and beneficial owners may be engaging in year-end tax planning as capital-gains issues loom large these days.

Moderating Economy, Still-Strong Earnings: Our Monthly Survey of the Economy, Interest Rates, and Markets

The stock market was flat to down last week as positive earnings surprises proved to be baked-in. Tech stocks modestly underperformed blue chips. During Friday's session, the Dow Jones Industrial Average fell 149 points, or 0.42%. The S&P 500 was down 0.54%, and the Nasdaq Composite was down 0.71%. For the week, the DJIA was down 126 points, or 0.36%, the S&P 500 was down 0.37%, and the Nasdaq Composite was down 1.11%. Year-to-date, the DJIA is up 14.14%, the S&P 500 is up 17.02%, and the Nasdaq Composite is up 13.85%.

Stocks fell again on Wednesday morning amid continued inflation fears, as the 10-year Treasury yield rose to 1.68% and U.S. consumer prices rose at their highest rate in nearly 12 years. The Labor Department reported that its consumer price index rose 0.8% in April, up from 0.6% in March and well above the Reuters consensus forecast of 0.2% growth. The CPI also rose 4.2% from the prior year, up from a 2.6% increase in March. The Dow fell 0.9%, the S&P 1.2%, and the Nasdaq 2.0%. Crude oil traded near $66 per barrel, while gold fell $4 to $1832 per ounce.

This edition features our U.S. housing outlook; smarter hydrogen investing; Swatch's prospects in a pricey luxury market; and notes from Johnson & Johnson, Schwab, and AMD.

This edition features a grocery opportunity; a midstream shift into petrochemicals; a new look at Caterpillar; and notes from Colfax, Eurofins, and Redfin.

Stocks rose again on Monday morning, continuing their recent rally, amid optimism about federal stimulus spending, the ongoing vaccine rollout, and the decline in new U.S. coronavirus cases. Prior to the open, 59% of S&P 500 companies had reported 4Q earnings, according to FactSet, and 81% of these companies had topped expectations. The Dow rose 0.4%, the S&P 0.3%, and the Nasdaq 0.4%. Crude oil traded near $58 per barrel, while gold rose $26 to $1839 per ounce.

After three consecutive weeks of surprisingly bearish results, insider sentiment has returned to benign levels. Let's review the data.