Here is a brief summary of highlights in October's Zacks
Top-Down S&P 500 End-of-Year 2012 Target
Holding or raising new
) highs above 1470 is possible, but the more likely scenario we
are in is a range-bound market until a firm resolution of Fiscal
Cliff issues. 1390-1400 is our low end. One stop lower, the
200-day moving average rests at 1375.
In late October, some Zacks experts think equity markets have
reached a phase where you have a battle of the long-term bullish
view vs. a short-term range-bound and even bearish view.
Long-term, one has to believe the primary bullish trend is intact
until proven otherwise. That is especially true with GDP expected
to ratchet up to +1.9% growth in the 3rd quarter versus only
+1.3% in the 2nd quarter.
However, in the short term, this stock market has some gains
to digest, a Presidential election dead-heat, and a Fiscal Cliff
problem looming right behind.
On the Fiscal Cliff, the San Francisco Fed had this to
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We assume Congress will let the payroll tax reduction and
extended unemployment benefits expire at year-end, but will agree
to extend the Bush tax cuts and adjust the alternative minimum
We also expect Congress to limit the spending cuts mandated in
the Budget Control Act of 2011.
In October, six macro trends had notable effects on
S&P 500 Sectors and Industries
(1) For Zacks-Ranked goods and services industries, we see the
Housing Recovery in strong earnings surprises tied to Housing.
) and Construction (
) -related goods and services industries that have very strong
Zacks Industry Ranks
Construction & Engineering
Building momentum in U.S. housing also helps the Financials
sector. We see a strong Zacks Industry Ranking for
Banks-Major and Banks &Thrifts
(2) A stronger U.S. stock market is a new macro theme.
Investment Banking & Brokering
saw an upgrade in October. Strong U.S. stock markets keep
industry one of the most highly rated.
(3) With modest GDP growth,
is presently a key strength.
(4) Fiscal Cliff tax sunsets that will raise U.S. personal income
tax rates or sequestration that cuts spending appear to hurt the
sector. We have seen weakness in capital goods spending and
Industrials weakness is apparent in October downgrades to
Metal Fabricating and Commercial Services
(5) IT weakness is a notable feature of the weak global GDP
growth environment. Growing revenues is difficult for the
big global IT businesses. The shift to smaller screen
tablets and mobile is not helping, either.
There is no highly rated IT industry. In an important
signal, October saw a downgrade to the
(6) China slowdown issues play out with a Market Weight rating to
In addition, there are other notable effects to
Materials and Industrial
sectors. The Steel and
are still struggling due to these China slowdown effects, along
. Another element to the China slowdown is fresh weakness in
industries, which saw a notable downgrade in October, as weak
coal shipping and prices play out.