Summary of the September Zacks Market Strategy
In September and October, it's a "forward look" to a 2013 earnings
Top-down S&P 500 earnings from ZRS indicate our top-down models
are pessimistic, saying S&P 500 earnings will be up +5% in 2012
and may grow +3% to +7% in 2013 versus bottom-up consensus near
Top-Down S&P 500 End-Of-Year Targets by Zacks In-House
We believe that holding or raising new S&P 500 highs above 1470
is possible, but it is also possible we are in a range-bound market
until a firm resolution of 'fiscal cliff' issues. 1390-1400 is our
In late September, some Zacks experts think equity markets have
reached a phase when stocks stall out, and investors move money
from one group to another, creating big winners and big
losers. The very next day they switch places. Some
days, a stock gets crushed and investors can't figure out why. The
next day the same stock is zooming higher while the market is
flat. Don't look for logic or a trend that can be
traded. There are-head fakes during these times. Stay focused
on fundamentals, which means rising earnings estimates and
We view the S&P 500 as a balanced global index, where 45% of
company revenues are earned abroad. With Europe's economy in
a shallow recession and growth slowing in China, the remaining 55%
of U.S. earnings raises the outlook for the U.S. S&P 500 above
foreign indexes with heavier international exposure. Macro
risks are less within the massive U.S.A. economy at this
moment. We like large cap U.S. stocks.
Ditto the S&P story.
We like the IT sector long-term. But we keep the NASDAQ-100
at a market perform at the moment, as foreign revenue growth and
domestic business spending on IT have slowed considerably. We
would add to a position here, though among stronger growing IT
companies who have recently beaten estimates. Apple keeps
things interesting and keeps the index up.
Zacks Large Cap/Small Cap Style Boxes show a "Muddle Through"
stock-pickers regime lingering. Faster growing, richly
priced, and smaller market cap companies offer investors higher
expected returns. But the market isn't buying it. Instead,
investors have bid up quality large cap value and blend stocks.
However, a contrarian view here may be the right one.
Finally, how do you find a successful investment opportunity by
tracking industry trends? In debates, we at Zacks note a firm
consensus for a steady "Muddle Through Economy." That's
misleading. Inside a +2% GDP growth rate, industry trends
churn this economy. And inside an economy's churn, broad
opportunities and equally broad risks exist for any investor.
Zacks strategists have positioned their investors on bullish
opportunities. Picks from individual strategists in
) are just a few. But be equally aware, churn includes
significant downside risks.
Here are five industry trends to think about:
(1) Momentum in U.S. housing markets helps the Financials sector
and Home Construction industries the most.
For Zacks Rank industries, we see strong earnings ranks tied to
Housing such as
(2) Rising oil prices mostly help the Energy sector.
For Zacks Rank industries, we see strength in
. Also, we see a strong Zacks Rank for Energy-Alternative
We see Zacks Rank weakness in
Oil & Gas-Integrated
(3) Fiscal Cliff. Coming tax sunsets could raise U.S.
personal income tax rates, or impose sequestration that cuts
spending. This appears to hurt the Industrials and IT sectors
We have seen weakness in capital goods spending and hiring across
all business sectors. For a Zacks Rank example, a weak
is now apparent.
(4) The U.S. drought has negative effects on the upstream Consumer
Staples sector in such industries as
, who must pass on the higher input prices.
We see strength in Zacks Rank downstream industries like
(5) China slowdown shows up in weakness in
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