The following is an excerpt from this week's Zacks Strategy article, click here to access the full article .
August is a vacation month. I wouldn't make any big portfolio decisions.
Volumes are light. The big trading room activity is shorting down over-valued stocks. Investors observing their portfolios closely are likely to scratch their heads about the ups and downs in an August market. The news to wait on is the Fed rate hike. Will it or won't it come in September?
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Excerpts from Zacks August Market Strategy report--
Equal Amounts of Optimism and Pessimism = Range-bound Trading
What compels U.S. optimism?
The plentiful U.S. jobs market. Stock wealth stokes discretionary spending. Demand builds in Health Care, Housing, and Consumer spaces.
How about pessimism?
Strong dollar issues abound. August WTI oil prices trade around $45 a barrel. This latest oil swoon looks to be a double-edged sword. Yes, U.S. auto transport and trucking and air and rail costs will fall. Low prices implode domestic oil production too.
Real GDP is Better Than What's Published
Real GDP rose in Q1 and Q2 of 2015, rising +0.6% and +2.3% at an annualized rate. However, recent San Francisco Fed staff research suggests seasonal factors not accounted for in official government figures held down the Q1 estimate. The staff's alternative estimate of +1.5% growth in Q1 is consistent with an ongoing moderate expansion for the U.S. economy.
Zacks Sector/Industry/Company Telescope - August Insights
August repeats the same sector story we have seen all year.
Two sectors support the S&P500: Health Care and Consumer Discretionary. These sectors are richly priced. But EPS growth is there to support the higher valuations. Energy and Materials stay at the bottom of the S&P500 sector list, once again. The Commodity and Oil price bust is on. Major businesses that mine are suffering.
(1) Health Care is best. The sector stays Very Attractive. All industries look great: Medical Care, Medical Products, and Drugs.
Zacks #2 Ranked Company to look at: Mednax, Inc. (ticker MD)
Formerly Pediatrix Medical Group, Inc., Mednax is a healthcare services company that focuses on physician services for newborn, maternal-fetal, pediatric subspecialty and anesthesia care.
In addition, MEDNAX engages in clinical research, monitoring clinical outcomes, and implementing clinical initiatives.
(2) Consumer Discretionary remains Attractive. The big winners are found in Apparel, and Autos/Tires/Trucks, and Home Furnishings. If that doesn't spell out cyclical, I don't know what does.
Zacks #2 Ranked Company to Look at: PACCAR (ticker PCAR)
PACCAR Inc. is the third-largest manufacturer of heavy-duty trucks in the world and has substantial manufacturing exposure to light/medium trucks. The company also provides customer support for its products by supplying aftermarket parts as well as finance and leasing services.
PACCAR has two principal business segments: 1) Truck, Parts and Other and 2) Financial Services. It is headquartered in Bellevue, WA,
(3) Financials got an upgrade to Attractive. The coming Fed rate hikes boost profitability. Investment funds are tops, Real Estate looks good, as do Banks & Thrifts.
Zacks #2 Ranked Company to Look at: Northern Trust (ticker NTRS)
Northern Trust Corporation is the holding company for its main subsidiary, Northern Trust Company, as well as a number of other banking and non-banking financial service subsidiaries. The company derives majority of its revenue and earnings from the trust business and provides a number of related banking and financial services.
The company's main sources of revenue include two of its primary business units: Corporate and Institutional Services (C&IS) and Wealth Management (WM). Primarily a third business unit, Asset Management, provides asset management and related services to WM and C&IS clients.
(4) Industrials got an upgrade to Attractive. Surprise. Surprise. The top areas are Business Products, Construction-Building Services, and Business Services. That shows a strong service economy backbone.
(5) Info Tech falls back to Market Weight. Semiconductors fell back to Very Unattractive, after a long spell on top. The best spot is Computer-office equipment and Computer-Software & Services now.
(6) Consumer Staples stays Market Weight. Tobacco gets upgraded, and does Food/Drug Retail. There are no dogs here at the moment.
(7) Telcos remain a Market Weight.
(8) Utilities are Unattractive. The lack of interest in this defensive sector signals the bull market is still here.
(9) Materials remain Unattractive. The bright spot is Paper. Containers & Glass look solid too. Stay away from Metals-Non-ferrous.
(10) Energy remains Very Unattractive. The oil price slump got worse in July. Coal is in terrible shape, due to Obama's Clean Energy plan.
To read the full Zacks August Market Strategy report, click here .
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