Monday Tee Up: Here Comes Walmart The focus this week flips back to inflation and the state of the consumer. Key inflation data will come out as will perhaps the most-telling earnings report related to the consumer -- Walmart. Wall Street is wondering if the Fed has been right on interest rates and can still achieve a soft landing and avoid recession. Last week, the Dow Jones Industrial Average ended down 0.6%, the S&P 500 lost 0.4%, and the Nasdaq fell 0.2%. Year to date, the Dow is higher by 5%, the S&P is up 12%, and the Nasdaq is higher by 12%. On the economic calendar, the big day is Wednesday, when inflation data comes out in the form of CPI. In June, CPI posted at 3.0%. Core CPI was 3.1%. We see July matching those rates. On Tuesday, wholesale inflation will grab the headlines when PPI is updated. On Thursday, Retail Sales, Industrial Production, and Capacity Utilization all will be released, and on Friday, Consumer Sentiment and Housing Starts come out. The earnings calendar is winding down but some big releases are due in this week. On Tuesday, Home Depot and On Holding report. On Wednesday, Cisco and UBS Group. And on Thursday, Walmart, Applied Materials, Alibaba, and Deere. Earnings are coming in 12.4% higher this quarter than a year ago (this after some 91% of S&P 500 companies have reported). Expectations were for 8%-12% earnings growth for 2Q. This follows 8% growth in 1Q and 10% in 4Q23. Last week, mortgage rates fell a big 26 basis points (bps) to 6.47% for the average 30-year fixed-rate mortgage. Gas prices fell four cents to $3.45 per gallon for the average price of regular gas. The Atlanta Fed GDPNow indicator is forecasting for 3Q and calls for expansion of 2.9%. The Cleveland Fed CPINow indicator forecasts 2.74% for August CPI. Looking ahead, the next Fed rate decision is on September 18, with odds at 100% for a rate cut. Of that, 51% expect a 25-bps cut and 49% expect a 50-bps cut. That data is according to the CME FedWatch Tool. There are then two more Fed rate meetings this year, on November 7, two days after the U.S. presidential election, and December 18.

Dividend income is often overlooked amid gyrations in the stock market. But dividends are an important element of return. Dividend income accounted for 42% of the total return of the S&P 500 between 1930 and 2012, according to Hartford Funds. And that's just the average. In some of those decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for a smaller portion of returns, at around 15%-20%. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks. High-yield stocks typically have dividends that pay out in the 5%-8% range. Though the income appears attractive, the share prices of high-yield stocks may be at risk. Dividend-growth stocks typically have lower yields, often in the 1.0%-2.5% range. But the lower-yielding dividends are not likely to be a huge component of cash flow, leaving management teams with other value-additive options for deploying cash. Further, while the yields are not as high, management teams may be more likely to boost the payouts over time, as earnings grow.

Dividend income is often overlooked amid gyrations in the stock market. But dividends are an important element of return. Dividend income accounted for 42% of the total return of the S&P 500 between 1930 and 2012, according to Hartford Funds. And that's just the average. In some of those decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for a smaller portion of returns, at around 15%-20%. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks. High-yield stocks typically have dividends that pay out in the 5%-8% range. Though the income appears attractive, the share prices of high-yield stocks may be at risk. Dividend-growth stocks typically have lower yields, often in the 1.0%-2.5% range. But the lower-yielding dividends are not likely to be a huge component of cash flow, leaving management teams with other value-additive options for deploying cash. Further, while the yields are not as high, management teams may be more likely to boost the payouts over time, as earnings grow.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

The inverted U.S. Treasury 10-year/two-year spread widened out to the 2024 high of -48 basis points (bps) on Friday. The 10-year closed at 4.47% and the two-year at 4.95%. The curve has been inverted since July 2022 on fears of a future recession, and peaked at -108 bps in July 2023. In January, it looked like we were heading towards a positive sloping curve as the inversion closed to -14 bps on hopes for a series of six or seven rates cuts in 2024. For the next few months, it settled in between -30 bps and -40 bps. Last week's release of the Fed minutes and other speeches by Fed officials showed that some members may not be ready to lower rates, considering recent higher inflation figures. Rate cuts would lower the front-end of the curve and ease some financing issues. We are still projecting two rate cuts in 2H24 and two in early 2025, which would move rates towards a more-normal upward sloping curve.

Management's ability to "raise guidance" can often be a catalyst for market-beating returns in the quarters ahead. The first-quarter earnings season has crossed the 90% mark and is wrapping up, with blended earnings (actual results and the consensus for those still to report) showing a year-over-year gain of almost 7%, according to Refinitiv. That is considerably better than the 4%-7% advance expected at the start of the earnings period. Leading the outperformance were strong gains in Communication Services earnings, up 43%, and Consumer Discretionary, up 26%. On the flipside, Healthcare and Energy, both down 24%, are performing the worst. Our analysts are always on the lookout for companies that boost outlooks during earnings season, as this is often a signal for momentum in the months ahead. Here is an initial list of BUY-rated companies in the Argus Fundamental Universe of Coverage at which management raised guidance or increased its outlook during the 1Q24 EPS reporting season.

Our stock/bond asset-allocation model, which we call the Stock Bond Barometer, is indicating that bonds are the asset class offering the most value at the current market juncture. But not by much. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks, of 0.15 sigma, with a standard deviation of 0.97. In other words, stocks normally sell at a premium valuation. The current valuation level is a 0.28 sigma premium for stocks, just above the historical average but down sharply from 0.85 at the end of 3Q23. Other valuation measures also show reasonable multiples for stocks. The current forward P/E ratio for the S&P 500 is approximately 19, which is within the normal range of 13-24. The S&P 500 dividend yield of 1.4% is below the historical average of 2.9%, but up from an ultralow 1.2% in 2021. That current dividend yield is 28% of the 10-year Treasury bond yield, compared to the long-run average of 39% and the all-time low of 18% during 1999. Further, the gap between the S&P 500 earnings yield and the benchmark 10-year government bond yield is about 315 basis points, compared to the historical average of 400 and nosebleed valuation levels of 200. Looking ahead, we expect the results from our valuation model to favor stocks, as interest rates head lower in 2024 and EPS growth picks up. Based in part on the output from our model, our current recommended asset allocation for moderate accounts is 71% growth assets and 29% fixed income.

The Nasdaq 100 (QQQ) rebounded to its 21-day exponential average and a 50% retracement of the recent pullback on Friday, April 26, and then stalled. As long as the index does not make a lower low, the next and more-important resistance is the breakdown level up at 435 -- which is also a 61.8% retracement and the location of the 50-day moving average. The two most-common pullbacks are a three-wave and a five-wave decline. It is still unclear what is currently in play, but we would lean toward a new pullback low.

Stocks closed higher on Thursday as investors digested new economic data. The January ISM Manufacturing PMI index registered a reading of 49.1, up from 47.1 in December, with growth in new orders, production, and prices, while backlogs, employment and inventories contracted. The S&P Global's reading of 50.7 is up from 47.9 in December, with an increase in new orders, and both input and output prices and employment increased fractionally. U.S. construction spending rose 0.9% in December, following a 0.4% increase in November. Meta Platforms (META) reported after the close and was up more than 14% within an hour after releasing results. Likewise, Amazon.com (AMZN) rose nearly 13%. The S&P 500 closed up 1.3%, the Dow 0.1% and the Nasdaq gained 1.3%. Crude oil fell to just below $73 per barrel, while gold was up $5 to $2072 per ounce.

Dividend income is often overlooked amid gyrations in the stock market. But dividends are an important element of return. Dividend income accounted for 42% of the total return of the S&P 500 between 1930 and 2012, according to Hartford Funds. And that's just the average. In some of those decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for a smaller portion of returns, at around 15%-20%. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks. High-yield stocks typically have dividends that pay out in the 5%-8% range. Though the income appears attractive, the share prices of high-yield stocks may be at risk. Dividend-growth stocks typically have lower yields, often in the 1.0%-2.5% range. But the lower-yielding dividends are not likely to be a huge component of cash flow, leaving management teams with other value-additive options for deploying cash. Further, while the yields are not as high, management teams may be more likely to boost the payouts over time, as earnings grow.

The Russell 2000 (IWM) offers a fascinating and challenging-to-read chart (long-term neutral). IWM peaked near the $160 level in September 2018 and in early 2020. Then, after the pandemic, small-caps ripped higher, with IWM peaking just below $240 in November of 2021. The index then crashed into mid-2022, right at the prior highs from 2018 and 2020 near $160. After a rally to near a prior breakout level around $200, IWM fell right back to its prior peak at $160 in October 2022. Another trip to the top of the range near $200 failed, as did an attempt to break out of the range in July 2023, which led to another successful test of the bottom of the range near $160 in October 2023.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Yesterday, we noted that the percentage of stocks trading above intermediate- and long-term trendlines (simple moving averages) had not yet tracked higher during the recent rally jag. Another indicator that this market is still "too thin to win" has been sector performance, which went from broad and healthy at the end of July to dangerously narrow at the end of October.

For a second week, insider-transaction data from Vickers Stock Research is generating bullish signals. Last week, insider-transaction volume was low as trading restrictions are in place during earnings season. But trades that did occur resulted in bullish insider-sentiment measures, especially open-market transactions (the most meaningful when considering sentiment).

With the breakout of war in the Middle East, the price of oil pivoted higher. West Texas Intermediate (WTI) rose 4.3% to $86.35/barrel, while Brent crude rose 4.2% to $88. Even with the bond market being closed, the 30-year Treasury futures popped 1.4%, the 10-year rose 1%, and the five-year futures gained 0.7%. S&P 500 (SPX) and Nasdaq 100 stock futures initially fell, but stocks eventually recovered during Monday's session. The SPX added 0.6%, while the Nasdaq and the QQQs were up 0.4% to 0.5%, respectively. This is the second day in a row that equities have faced tough news (Friday it was a hot payroll report) and buyers stepped in to save the market. As we often say, it's not the news, but the reaction to the news.

The stock market continues to tread water, bouncing off both short-term support and resistance. The streak of sideways price action gets longer by the day. Going all the way back to June 15, or 65 trading days, the S&P 500 (SPX), the Nasdaq, and the Nasdaq 100 (QQQ) have gone nowhere. One might think this is highly unusual for such a length of time, but it often happens.

The S&P 500 is down 4% since its July 31 closing high, and the Nasdaq and Nasdaq 100 (QQQ) are off almost 6% from their July 18 closing high. Has there been any sector in which investors can hide? Not really. While the selling and losses have not been heavy, the weakness has been broad.

The first-quarter earnings season has passed the halfway mark with 292 (or 58%) of S&P 500 companies having reported results through August 1. An impressive 81% of those companies exceeded earnings expectations, while the blended (actual and still to report) earnings decline is now projected at 5.9%, according to Refinitv. The Consumer Discretionary sector still leads with 36% earnings growth, while Energy is now by far the weakest sector, with a 48% profit decline. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Management's ability to "raise guidance" can often be a catalyst to market-beating returns in the quarters ahead. Here is an initial list of BUY-rated companies in Argus Coverage for which management has raised guidance or increased its outlook during the 2Q23 EPS reporting season.

Stocks fell again on Thursday morning, a day after a sharp selloff prompted by the Fitch downgrade of U.S. government debt. On the earnings front, Qualcomm shares dropped 10% after the chipmaker reported mixed fiscal 3Q results and offered disappointing 4Q guidance. PayPal also fell sharply on concerns about weak operating margins and rising loss provisions. The Dow fell 0.3%, the S&P 0.5%, and the Nasdaq 0.5%. Crude oil rose 1% to $80 per barrel, while gold fell $5 to $1971 per ounce.

To say that the rest of this week is very important for the stock market is an understatement. This is the busiest week of the second-quarter EPS season, with a large number of very big companies reporting. As well, the Fed announces its latest rate decision, broadly expected to be a 25-basis-point increase in the fed funds rate to a range of 5.25% to 5.5%. Meanwhile, the ECB meets on Thursday and the Bank of Japan convenes on Friday.

June was another stellar month for the stock market as the rally finally started to extend beyond just a few big technology names. The S&P 500 and the NASDAQ 100 (NDX) tacked on 6.5%, the NASDAQ added 6.6%, the S&P 100 (OEX) rose 6%, the NYSE advanced 6.6%, the S&P MidCap 400 popped 9%, and the Russell 2000 was up 8.1%. These are very consistent monthly index gains for the first time in 2023. For the year, the SPX is up 16%, the NASDAQ has added 32%, the sizzling hot NDX has exploded 39%, and the S&P 100 has added 21%.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Several weeks ago, with insider-transaction volume at cyclical lows because of trading restrictions in place during earnings season, we noted more insider selling than buying. But we also noted that the majority of the selling was the result of prescheduled sales by insiders, and not 'spur of the moment' reactions to market developments.

We are raising our intermediate-term technical outlook back to bullish from neutral. After breaking out of a bullish cup formation on February 1, and above chart resistance from the prior highs at 4,100, the S&P 500 (SPX) pulled right back to that level on Monday and again on an intraday basis on Tuesday. The index also fell right to short-term trendline support off the lows since January 20. The result was a picture-perfect bullish backtest of support and a very strong bounce.

ESG (Environmental, Social, Governance) investing continues to grow. According to the Global Sustainable Investment Association, global assets under management in ESG strategies had grown to $40 trillion in 2020, up from $23 trillion in 2016 and on track for $50 trillion by 2025. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol and firearms. In time, the list of industries to avoid increased to include soft drinks, fast food, and oil and gas, among numerous others. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as the climate, hunger, poverty, disease, shelter, and workers' rights. At Argus Research, we track ESG developments at specific companies as part of our Management analysis - one of the six points in our proprietary Six-Point Fundamental Approach. In addition to reviewing and measuring the ESG proclamations from the companies under coverage, we partner with an ESG research firm, the JUST Capital Foundation, and leverage its analysis and insights on the topic as well. JUST Capital's mission is to drive measurable corporate change to create a stakeholder-centric, inclusive form of capitalism that reflects the priorities of the American public. JUST utilizes a combination of data-driven research and strategic engagement in an attempt to shift norms and practices in corporate America and the financial markets. JUST ESG Custom Ratings rank stocks in the Russell 1000 on criteria using a scale of 1-100. Drawing on the JUST Capital rankings, we have compiled focused lists of companies followed by Argus Research that are in position to have this type of "sustainable impact" on the environment, workplace, community, and marketplace. These firms have exemplary records not only in delivering on the bottom line, but also in improving the environment, contributing to community relations, and showing respect for their employees. We also have a Theme Model Portfolio based in part on the ESG criteria. To build the Argus U.S. ESG Model Portfolio, we applied financial concepts such as industry diversification, income generation, risk reduction and growth at a reasonable price to our various lists. In addition, all stocks must be on the Argus BUY list. Here are the new stocks that have been added to the Argus U.S. ESG Model Portfolio. For more JUST Score details on these companies, and others in the portfolio, please visit the JUST Capital website, www.justcapital.com.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

While the volume of insider transactions reported by Vickers Stock Research remains relatively low because of restrictions placed on executives, beneficial owners, and directors during earnings season, the trading that is taking place has now been cautious for three consecutive weeks. New to the mix this week is a bearish pop in Vickers' NYSE One-Week Sell/Buy Ratio. That reading had been holding up, even as the Nasdaq one-week reading has been weak. But now, the NYSE reading also is showing some strain - and the combination of now-weakening NYSE sentiment combined with ongoing-weak Nasdaq sentiment is having a negative impact on Vickers' broader (eight-week) sentiment readings.

Monday Tee-Up: Key Inflation Data, CPI & PPI

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.

We have raised our intermediate-term technical outlook to neutral from bearish. The market has come roaring back after a week of panic and indiscriminate selling. While we were disappointed with market breadth on January 28, it was strong on Monday, January 31. The S&P 500 rose another 1.9%, for a two-day spike of 4Friday, .4%, the biggest two-day gain since April 2020 when we were coming out of the pandemic low. The Nasdaq spiked 3.4% for a two-day surge of 6.6%, while the Nasdaq 100 (QQQ) has screamed higher by 6.4% on a two-day basis. These are the biggest returns for both indices since November of 2020.

Over the weekend, the House of Representatives approved the largest public works bill since the 1950s. The bipartisan trillion-dollar bill, which was passed by the Senate in August, now goes to President Biden's desk for signing. The plan focuses on improving the country's infrastructure, from roads and bridges to water systems and electricity grids. It also targets the auto industry, with a focus on electric vehicles and charging stations. In the power sector, Biden's goal is to achieve a carbon-free power industry by 2035. To improve energy efficiency in buildings, he is looking to retrofit four million buildings in the four years. Elsewhere, business Services companies also stand to benefit; bond issuance should pick up given that the infrastructure spending plan will be financed at least in part by bonds; and payroll companies could get a boost processing more paychecks as the infrastructure plan creates "millions of good paying jobs." All-in-all, some of the companies that we think may benefit include the following.

Back with a Vengeance: Our Monthly Survey of the Economy, Interest Rates, and Markets

Back with a Vengeance: Our Monthly Survey of the Economy, Interest Rates, and Markets

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Bank of New York Mellon Corp (BK); Alphabet Inc (GOOGL); Emerson Electric Co. (EMR); TJX Companies, Inc. (TJX) and the Focus List deletions are D.R. Horton Inc. (DHI); Activision Blizzard Inc (ATVI); Trane Technologies plc (TT); Lazard Ltd. (LAZ).

Trying to Get to Normal: Our Monthly Survey of the Economy, Interest Rates, and Markets

Stocks were mixed on Thursday morning following news that the Biden administration would support intellectual property waivers on coronavirus vaccines. Pfizer and Moderna shares were down sharply, though JNJ was flat. On the employment front, the Labor Department said that first-time claims for state unemployment benefits fell to 498,000 for the week ended May 1, down from 590,000 a week earlier and below the Bloomberg consensus of 538,000. The Dow rose 0.4%, the S&P rose 0.1%, and the Nasdaq fell 0.3%. Crude oil fell 1% to $65 per barrel, while gold traded near $1815 per ounce.

Stocks kept the momentum going during April, and maintain the performance lead over bonds as summer approaches. Looking ahead, our Stock-Bond Barometer model is close to equally balanced between stocks and bonds for long-term investors. In other words, these asset classes should be near their normal weights in diversified portfolios. We have looked for large-cap companies with strong balance sheets and experienced management teams to be the leaders during the eventual recovery from COVID-19. This has played well, and now, with a vaccine on the horizon, small-cap risks are reduced. Our recommended exposure to small- and mid-caps is now 15% of equity allocation, in line with the benchmark weighting. U.S. stocks have outperformed global stocks over the trailing five-year period. We expect this trend to continue over the long term, given volatile global economic and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 15%-18% of equity exposure to the group. Value has been a surprise leader in 2021. We anticipate that growth, led by Tech and Healthcare, will recover and outperform value, led by Energy and Materials, as long as interest rates remain low.

Our rating on the Industrial sector is Over-Weight. After enduring the challenges of the pandemic, the cyclical stocks in the sector appear well positioned within the changing political environment. Specifically, we believe that Industrial stocks will benefit from enhanced infrastructure investment and more-lenient trade policies during the Biden administration. The Industrial sector accounts for 8.9% of S&P 500 market capitalization. Over the past five years, the weighting has ranged from 7% to 12%. We think that investors should allocate 9%-10% of their diversified portfolios to the group. The sector includes industries such as transportation, aerospace & defense, heavy machinery and electrical equipment. The sector is outperforming the market thus far in 2021. It underperformed in 2020, with a gain of 9.0%, and slightly underperformed in 2019, with a gain of 26.8%. Here are some of our top Industrial picks, all of which are rated BUY at Argus.