After the stock market's strong year-to-date gains, we have
updated our outlook for the market in the
Zacks Market Strategy
report for March, available on Zacks Premium.
Here is a short summary of the report's key points:
Year-end 2013 Target for the S&P 500
At 14.7 times this year's conservative earning estimate, stocks
remain slightly undervalued. Consider the average stock market
P/E is 15. Apply that to $113 per share optimists expect for the
S&P 500 in 2013 (Ticker:
That computes to fair value at 1695!
Even if you say those earnings projections are high (we would
agree), trimming to a more conservative level of $105 per share
gives S&P 500 fair value of 1575.
With the above, we remain comfortable putting out a 2013 target
of 1600 for the year-end S&P 500. That is an earnings yield
of 6.56%. In fact, if we get towards the end of 2013 with
U.S. GDP in healthy shape and no U.S. recession on the horizon,
we could easily get a nice stretch above 1600.
Stocks have run for close to 4 months. Is a pause or correction
due? The last two macro event relief rallies in 2010 and
2011 lasted six months. Sell in May and go away?
Fourth Quarter Earnings Season Concluded
For Q4, 97% S&P 500 companies have reported earnings and
revenues. They were up +2.2% and +1.5% y/y, respectively.
Revenue outperformance has been largely a function of subdued
expectations. This was better than Q3, but the second lowest
growth rates since the recovery got underway in 2009.
The market doesn't seem overly concerned. It is looking
ahead to expected GDP growth in 2H-13. Earnings growth in 2H-13
and 2014, which mirror estimates for GDP growth, shows a material
ramp up. A less worrisome tone on company guidance in Q4
earnings calls and recent favorable macro data raised confidence.
This has been at play in the S&P 500's positive momentum.
March S&P 500 Sector Update
(A) With a rise in Feb. U.S. jobs numbers and upward 2013 jobs
revisions, and a
stock market hitting multi-year highs
, the personal sides of
) are highly ranked:
Soap & Cosmetics, Home Furnishing - Appliance,
SPDR-MATLS SELS (XLB): ETF Research Reports
SPDR-EGY SELS (XLE): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
SPDR-TECH SELS (XLK): ETF Research Reports
SPDR-CONS STPL (XLP): ETF Research Reports
To read this article on Zacks.com click here.
The basics underperform:
Food, Beverages, Autos-Tires-Trucks
industries showed us very weak Zacks Ranks in the space.
(B) High Zacks Ranked industries arrived from building U.S.
momentum in the
) focused on
Thrifts & Mortgage Finance
Investment Banking & Brokering
industries showed up strong.
(REITs and Management) remains a Market Weight.
improvement in the domestic and global outlook
(mostly China) pushed up the
) sector. Strength was apparent in high Zacks Industry Ranks for
(D) In addition, there is a notable change inside the Industrials
) on this stronger domestic and global outlook.
Electrical Machinery, Construction - Building Services,
Transportation - Air
Industrial Products - Services
(E) IT (Ticker:
) looks strong now, as
rose to become attractive Zacks Ranked Industries.
remained a market weight.
Computer Software & Services
ranked as a market weight industry after the conclusion of Q4-12
Stronger gasoline at the pump prices
played out within the
). We saw
do best in the Zacks Ranks, though there was a Zacks Rank rise in
companies further downstream.
remain weak, victims of low natural gas prices.