On Tuesday, stocks passed their first test of the week with flying colors after a better-than-expected PPI print. The S&P 500 (SPX) popped 1.7%, the Nasdaq ripped higher by 2.4%, and the Nasdaq 100 jumped 2.5%. The indices are close to turning a number of short- to -intermediate-term technical indicators back to bullish, and quickly. It is now clear that the big downside reversal and weak close on August 7 was one of those nasty fake-out days that are so often seen at intermediate-term bottoms and tops. Technicians love these fake-out days and love even more that the reversal from recent panic lows is taking the shape of a 'V,' a favorite technical bottom (NOT!). From August 7 through August 13, the SPX jumped 4.5%, the biggest four-day gain since early November 2023, when the market was emerging from the July-to-October pullback. Since August 6, the index has seen daily gains of 1%, 2.3%, and 1.7%, which is pretty impressive. The bear flags that we thought might be developing on the major indices were blown up on Tuesday although we still might be working on a bearish wedge. But for that to happen, stocks would need to turn down very quickly. The SPX has climbed back above its 21-day exponential moving average (EMA) after losing it on August 1, and the five-day/13-day EMA crossover is very close to turning back to bullish as the index approached both a 61.8% retrace and the 50-day (which are in the 5,452 to 5,460 region). The four-day pop for the Nasdaq 100 is 6.4%, the best such run since November 2022 when the ETF (QQQ) was bottoming. The five-/13-day EMA cross is close to turning bullish, the momentum downtrend has been busted, and a 50% take-back at 463.50 is very near.

U.S. stocks rose on Thursday ahead of the April jobs report due out on Friday. Apple (AAPL) rose 6% after hours when it announced a $110 billion stock buyback plan. The two-year Treasury yield fell to 4.889% while the 10-year yield was down to 4.58%. The Dow was up 0.9%, the S&P 500 gained 0.9% and the Nasdaq rose 1.5%. Crude oil traded above $79 per barrel and gold rose $3 to $2313 per ounce.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from global events. As well, the prices of SMID stocks generally are lower than the prices of large-caps. As well, there are long stretches in the record books when SMID stocks have outperformed large-caps. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over a 2003-2021 test period, versus 4.3% for large-caps. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.

Monday Tee Up: Back to Inflation

Stocks rose strongly on Friday morning after lower-than-expected employment growth raised the likelihood of an end to the Fed's rate hike campaign. The Labor Department said that the U.S. economy added 150,000 payroll jobs in October, down from a revised 297,000 in September and below the Reuters consensus forecast of 180,000. In other signs of a cooling labor market, the unemployment rate edged up to 3.9% from 3.8% a month earlier and annual growth in average hourly earnings slowed to 4.1% from 4.3%. The Dow rose 0.7%, the S&P 0.9%, and the Nasdaq 1.2%. Crude oil traded near $82 per barrel, while gold rose $8 to $2002 per ounce.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. Since 2010, the Russell 1000 Growth Index has climbed more than 550%, compared to an advance of almost 300% for the Russell 1000 Value Index. In eight of the past 10 years, growth stocks have topped value stocks. That hasn't always been the case. In the 2000-2010 decade, which included two Bear Markets and the Great Recession, value stocks were better performers than growth stocks, advancing an admittedly low 8% -- but still better than growth, which declined 15% during the decade. Value investors trace their roots to the famous "Security Analysis" textbook, written in 1934 (the year Argus Research was founded) by Ben Graham, an economics professor at Columbia University. Warren Buffett was one of his students. Looking ahead, the rollout of COVID-19 vaccines has given a lift to some of the cyclical companies (Energy sector companies in particular) that have lagged in recent years, and value stocks outpaced growth stocks in the past year. Now, the Federal Reserve is lifting interest rates to fend off inflation, which likely will cap multiple expansion for growth companies. In any event, value is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.0%, compared to the 0.7% current yield on the iShares Russell 1000 Growth Index ETF. For our list this week, we screened our coverage universe for stocks that are BUY-rated by Argus Research analysts, have an Argus Financial Strength rating of at least Medium, and have a yield of 3.0% or higher. Here's a baker's dozen of stocks that meet the criteria.

Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. But the tide turned in 2022. The rollout of COVID-19 vaccines gave a lift to some of the cyclical companies (energy companies and regional banks) that had lagged in recent quarters, and value stocks outpaced growth stocks over the past year. Meanwhile, the Federal Reserve continues to lift interest rates to fend off inflation, which could possibly cap multiple expansion for growth companies for a few more quarters. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.2%, compared to the 0.9% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.

Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. But the tide turned in 2022. The rollout of COVID-19 vaccines gave a lift to some of the cyclical companies (energy companies and regional banks) that had lagged in recent quarters, and value stocks outpaced growth stocks over the past year. Meanwhile, the Federal Reserve continues to lift interest rates to fend off inflation, which could possibly cap multiple expansion for growth companies for a few more quarters. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.2%, compared to the 0.9% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.

Monday Tee Up: Labor (The Fed's Other Job)

Monday Tee Up: The Fed, Jobs, Earnings

Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. Since 2010, the Russell 1000 Growth Index has climbed more than 500%, compared to an advance of almost 300% for the Russell 1000 Value Index. In eight of the past 10 years, growth stocks have topped value stocks. That hasn't always been the case. In the 2000-2010 decade, which included two bear markets and the Great Recession, value stocks were better performers than growth stocks, advancing an admittedly low 8% -- but still better than growth, which declined 15% during the decade. Value investors trace their roots to the famous "Security Analysis" textbook, written in 1934 (the year Argus Research was founded) by Ben Graham, an economics professor at Columbia University. Warren Buffett was one of his students. Looking ahead, the rollout of COVID-19 vaccines has given a lift to some of the cyclical companies that have lagged in recent years, and value stocks outpaced growth stocks in the past year. Now, the Federal Reserve is lifting interest rates to fend off inflation, which likely will cap multiple expansion for growth companies. In any event, value is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.2%, compared to the 0.9% current yield on the iShares Russell 1000 Growth Index ETF. For our list this week, we have screened our coverage universe for stocks that are BUY-rated by Argus Research analysts, have a Financial Strength rating of at least Medium, and have a yield of 4.0% or higher. Here's a baker's dozen that meet the criteria.

Value stocks -- a market segment that includes high-yield stocks -- outperformed growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. But the tide turned in 2022. The rollout of COVID-19 vaccines gave a lift to some of the cyclical companies (energy companies and regional banks) that had lagged in recent quarters, and value stocks outpaced growth stocks over the past year. Meanwhile, the Federal Reserve continues to lift interest rates to fend off inflation, which could possibly cap multiple expansion for growth companies for a few more quarters. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.2%, compared to the 0.9% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.

Strong Start: Our Monthly Survey of the Economy, Interest Rates, and Stocks

Stocks rose on Monday morning ahead of the Tuesday midterm elections and new inflation data on Thursday. Meta shares rose more than 6% following reports that the company would lay off thousands of workers in order to cut costs. Apple fell 1% after warning of reduced iPhone 14 production due to COVID restrictions in China. The Dow rose 0.7%, the S&P 0.4%, and the Nasdaq 0.1%. Crude oil traded near $94 per barrel, while gold rose $5 to $1682 per ounce.

Value stocks -- a market segment that includes high-yield stocks -- are outperforming growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. Since 2010, the Russell 1000 Growth Index has climbed more than 600%, compared to an advance of 300% for the Russell 1000 Value Index. In nine of the past 10 years, growth stocks have topped value stocks. That wasn't always the case. In the 2000-2010 decade, which included two bear markets and the Great Recession, value stocks were better performers than growth stocks, advancing an admittedly low 8% (but still better than growth, which declined 15% during the decade). Value investors trace their roots to the famous "Security Analysis" textbook, written by Ben Graham, an economics professor at Columbia University. Warren Buffett was one of his students. Looking ahead, the roll-out of COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and regional banks) that have lagged in recent quarters, and value stocks have kept up the pace with growth stocks in the past year. Now, the Federal Reserve is lifting interest rates to fend off inflation, which will likely cap multiple expansion for growth companies. In any event, value is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.1%, compared to the 0.8% current yield on the iShares Russell 1000 Growth Index ETF. For our list this week, we have screened our coverage universe for stocks that are BUY-rated at Argus Research, have an Argus Financial Strength rating of at least Medium, and have a yield of 4.0% or higher. Here's a baker's dozen that meet the criteria.

Value stocks -- a market segment that includes high-yield stocks -- are outperforming growth stocks in 2022 for the first time since 2016. Indeed, for the past decade, the performance record has favored growth. In nine of the past 10 years, growth stocks have topped value stocks. But the tide may be turning. The rollout of COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and regional banks) that have lagged in recent quarters, and value stocks have kept up the pace with growth stocks in the past year. Now, the Federal Reserve lifting interest rates to fend off inflation, which will likely cap multiple expansion for growth companies. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 2.1%, compared to the 0.8% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.

Stocks were mixed on Tuesday morning as investors weighed a new round of earnings reports, including strong results from Uber. The ride-hailing service reported better-than-expected revenue and its first quarter of positive free cash flow, sending the shares up 17%. On the negative side, Caterpillar shares fell more than 3% after the company posted mixed results and warned of lower construction equipment sales in China. The Dow fell 0.3%, the S&P rose 0.1%, and the Nasdaq rose 0.6%. Crude oil traded near $95 per barrel, while gold rose $8 to $1795 per ounce.

Looking for a Bottom

During the current rally, we have seen improvement in market breadth indicators -- although some remain bearish while others are only neutral. In the S&P 500, 62% of stocks are above their 50-day average (all breadth data as of the 3/25 close) from a February low of 24%, while 53% are above their 200-day, up from a recent low of 36% (which was the weakest level since June 2020). Generally, large market declines happen when this measure falls and stays below 45%, so we would like to see more improvement for the average stock in the S&P 500.

Value stocks -- a market segment that includes high-yield stocks -- are outperforming growth stocks in 2022. For the past decade, the performance record has favored growth, but the tide may be turning. The rollout of COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and regional banks) that have lagged in recent quarters, and value stocks have kept up the pace with growth stocks in the past year. Now, the Federal Reserve is poised to lift interest rates to fend off inflation, which will likely cap multiple expansion for growth companies. Regardless, the value sector is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 1.6%, compared to the 0.5% current yield on the iShares Russell 1000 Growth Index ETF. For our High-Yield Theme Model Portfolio, we are seeking stocks with yields of at least 3.0%. This moves us deep into the value segment of the market.

Stocks rose on Thursday morning, despite a weaker-than-expected GDP report, as investors continued to focus on strong third-quarter earnings. The Commerce Department said that U.S. GDP rose at a 2.0% annualized rate in 3Q, the weakest reading since 2Q20 and below the Reuters consensus forecast of 2.7% growth. The Dow rose 0.5%, the S&P 0.8%, and the Nasdaq 1.2%. Crude oil fell to $82 per barrel, while gold traded near $1800 per ounce.

We recently raised our rating on the Basic Materials sector to Over-Weight. Despite challenges presented by the Delta variant and the tenacity of COVID-19, the global economy continues to reopen, spurring demand for goods and underscoring scarcity across the supply chain. In this environment, we look for demand for commodities to remain robust and pricing to remain strong. The sector accounts for 2.5% of the S&P 500, and includes industries such as chemicals, paper, metals and mining. Over the past five years, the weighting has ranged from 2% to 4%. We think investors should consider allocating 3% of their diversified portfolios to stocks in this sector. The sector is underperforming thus far in 2021, with a gain of 17.7%. It outperformed in 2020, with a gain of 18.1%, and underperformed in 2019, with a gain of 21.9%. Here is how we use our analysts' Materials sector ideas in our Focus List and Model Portfolios.

Value stocks are outperforming growth in 2021 (for the first time since 2016), though a recent rally in growth stocks has narrowed the performance advantage for value. But in an environment of historically low interest rates, many investors are still searching for high levels of income, which often can be found in value stocks. During recent years, the performance record has favored growth. Since 2010, the Russell 1000 Growth Index has climbed more than 450%, compared to an advance of 180% for the Russell 1000 Value Index. In eight of the past 10 years, growth stocks have topped value stocks. That hasn't always been the case. In the previous decade, including the Great Recession, value stocks were better performers than growth stocks, advancing an admittedly low 8%, but still better than growth, which declined 15% during the decade. Value investors trace their roots to the famous "Security Analysis" textbook, written by Ben Graham, an economics professor at Columbia University. Warren Buffett was one of his students. The tide may now be turning. Progress on COVID-19 vaccines has given a lift to some of the cyclical companies (energy companies and banks) that have lagged in recent quarters, and value stocks have kept pace with growth stocks in the past year. In any event, value is the place to achieve income. The current yield on the iShares Russell 1000 Value Index ETF is 1.6%, compared to the 0.5% current yield on the iShares Russell 1000 Growth Index ETF. This is important, as the current yield on the 10-year Treasury bond is 1.30%. For our list this week, we have screened our coverage universe for stocks that are BUY-rated by Argus Research analysts, have an Argus Financial Strength rating of at least Medium, and have a yield of 3.0% or higher. New stocks in our portfolio include the following.

Value stocks are outperforming growth in 2021 for the first time since 2016. While a recent rally in growth stocks has narrowed the performance advantage for value in the year to date, an environment of historically low interest rates is one in which many investors are still searching for high levels of income -- which often can be found in value stocks. When we look for attractive high-yield/deep-value stocks at Argus, we look for low valuations on metrics such as price/earnings, price/sales, price/book, yield, and price/cash flow. We also look for companies with clean balance sheets, high levels of profitability, high-quality earnings, and experienced management teams. We seek to avoid companies in industries that are in secular decline, or with dividend yields that are so high that the payout is clearly at risk. Based on numerous requests from clients, we have designed a portfolio of companies that are BUY-rated at Argus Research, have a Financial Strength rating of at least Medium, and have a yield of 3.0% or higher.

Stocks rose on Monday morning as investors weighed more 2Q earnings reports, M&A news, and prospects for an infrastructure deal in Washington. Payments firm Square Inc. rose nearly 9% after announcing that it would purchase Australia's Afterpay Ltd. for $29 billion. Manufacturing data showed continued expansion, but came in slightly below consensus. The Institute for Supply Management said that its index of national factory activity fell to 59.5 in July, down from 60.6 in June and below the Reuters consensus of 60.9. The Dow, the S&P, and the Nasdaq were all up about 0.4%. Crude oil traded near $72.50 per barrel, while gold rose slightly to $1818 per ounce.

U.S. debt levels have quietly and quickly grown over the past 10 years, and total U.S. debt is now more than 125% of GDP, according to the Office of Management & the Budget. This is the highest level since World War II. In the 1980s, the debt/GDP ratio was solidly in the 40% range, and moved up toward the 60% level by 2000. The debt level soared around 2010, as the government spent aggressively to stop the recession and rekindle growth (according to Keynes, that's what the government is supposed to do). However, despite more than 10 years of economic growth prior to the pandemic, the debt level grew as a percentage of GDP. And now, in light of the fiscal spending to fight the impact of COVID-19, debt levels have surged further. This is not a problem that has to be fixed today. After all, interest rates are low on an historical basis and policies to change the trajectory (less spending, more taxes) could push the economy back into decline. But politicians should start to establish a plan to address the issue in the next 10-15 years. If the problem is not solved, the situation could result in hyperinflation or an inability for the government to address long-term problems such as climate change.

Stocks rose on Thursday as investors looked past more signs of inflation in the government's May consumer price data. The Labor Department said that the CPI rose 5.0% year-over-year in May, up from 4.2% in April. The reading was above the Reuters consensus forecast of 4.7% and the sharpest annual increase since 2008. The core CPI, excluding food and energy, also rose 3.8% from the prior year. On the employment front, first-time jobless claims fell to a new pandemic era low of 376,000, down from the prior week but slightly above consensus. Continuing claims fell to 3.499 million, down from 3.757 million a week earlier and below the consensus forecast of 3.665 million. The Dow rose 0.06%, the S&P 0.47%, and the Nasdaq 0.78%. Crude oil rose slightly to $70 per barrel, while gold fell $6 to $1901 per ounce.

Stocks were largely flat on Tuesday morning after a week of strong gains as investors awaited next steps in the passage of the Biden administration's stimulus plan. On the employment front, the Labor Department, in its monthly JOLTS report, said that U.S. job openings rose slightly in December, to 6.65 million, while hiring fell to 5.54 million from 5.94 million in November. The Dow and the S&P were flat, while the Nasdaq rose 0.3%. Crude oil traded near $58 per barrel, while gold rose $3 to $1837 per ounce.

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

Stocks rose on Thursday, led by gains in the Tech sector, despite a cautious economic outlook from the Fed and an unexpected rise in initial unemployment claims. First-time claims for state unemployment benefits rose back above 1 million after falling below that mark the previous week, and came in well above the Reuters consensus forecast of 925,000. However, continuing claims fell to 14.844 million, down from 15.480 million a week earlier and below the consensus forecast of 15 million. The Dow rose 0.17%, the S&P 0.32%, and the Nasdaq 1.06%. Crude oil fell to $42.50 per barrel, while gold fell $10 to $1961 per ounce.

Stocks rose on Thursday, led by gains in the Tech sector, despite a cautious economic outlook from the Fed and an unexpected rise in initial unemployment claims. First-time claims for state unemployment benefits rose back above 1 million after falling below that mark the previous week, and came in well above the Reuters consensus forecast of 925,000. However, continuing claims fell to 14.844 million, down from 15.480 million a week earlier and below the consensus forecast of 15 million. The Dow rose 0.17%, the S&P 0.32%, and the Nasdaq 1.06%. Crude oil fell to $42.50 per barrel, while gold fell $10 to $1961 per ounce.

This edition features an updated U.S. economic outlook; containerboard; European utilities' dividends; and notes from China Jinmao, Omron, and Pilgrim's Pride.