Will the Fed Ride to the Rescue? Our Monthly Survey of the Economy, Interest Rates, and Stocks The stock market is in correction mode and potentially on its way to a bear market. Several factors may be contributing to the selloff, including weak and below-consensus nonfarm payrolls and a 4.3% unemployment rate for July, softening indicators from the industrial economy, and overdue profit-taking in Magnificent Seven and AI names after an 18-month rally. Despite the mid- to late-July selloff, a strong start to the month enabled the S&P 500 to end July barely changed for the month. August has been awful so far, with the stock market reacting to weak economic data from the industrial and jobs economy and concerns that the Fed remained in restrictive mode for too long. We do not expect the Fed to change interest-rate policy between FOMC meetings, but the environment is certainly dynamic. The Economy, Interest Rates, and Earnings The broadest measure of the U.S. economy, Gross Domestic Product, appeared to show a healthy and even accelerating economy as of mid-year. The advance report of second quarter GDP stepped up meaningfully from first-quarter levels, and in particular indicated a recovery in consumer spending. The market is not much for looking back, and third-quarter and monthly data will be key to restoring stability to the stock market. A review of the second quarter does appear to indicate a normally growing economy as of mid-year. The advanced report of second-quarter GDP showed growth of 2.8%, double the 1.4% growth rate reported for 1Q24. Ahead of the advance report release, the consensus call was for low 2% growth in the first quarter. The increase in second-quarter 2024 GDP primarily reflected increases in personal consumption expenditures, private inventory investment, non-residential fixed investment, and total government spending. These gains were offset partly by a decline in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased and exceeded exports. Personal consumption expenditures for 2Q24 increased 2.3%, up from 1.5% for 1Q24 and 2.2% for all of 2023. Spending on goods increased 2.5% in 2Q24, after falling 2.3% in 1Q24. Durable goods spending rebounded by a sharp 4.7% in 2Q24, after declining 4.5% in the prior quarter. Durable goods spending was up 4.2 % for all of 2023. Non-durable goods spending also bounced back, rising 1.4% for 2Q24 after declining 1.1% in 1Q24. The decline in annual inflation growth has mainly been concentrated in goods, while services inflation remains stubbornly elevated. Consumers may now be willing to buy goods at stable or even lower prices. Consumer spending on services grew 2.2% in 2Q24, and was the one component of PCE that declined from the first quarter. Consumer spending on services grew 3.3% in 1Q24. Some of the growth in consumer services spending is being driven by rent equivalent and insurance, two costs consumers cannot control and many cannot avoid. The very weak trend in 1Q24 consumer spending appeared to provide further evidence of the consumer under siege from multiple years of inflation. The bounce-back in second-quarter consumer spending could suggest that consumers have adapted to higher prices, or it could turn out to be a head-fake. We expect PCE within the GDP accounts to continue to send conflicting signals, with overall goods spending more volatile than services. Non-residential fixed investment, the proxy for corporate capital spending, rose at a 5.2% annual rate in 2Q24, after rising at a 4.4% annual rate in 1Q24. This category was also healthy in 2023, rising 4.5%. Spending on equipment increased in low-double-digit percentages, while spending on intellectual property was up in low-single digits. Some of the growth in capital spending in 2023 and in the 2024 first half has been the result of corporations facing higher costs for everything. PCE and non-residential fixed investment represent about four-fifths of gross domestic product in any quarter. In 2Q24, consumer spending added about 1.5 percentage point to GDP, while non-residential fixed investment added 0.7 percentage point. Residential fixed investment, which surprised with 16% growth in 1Q24, dropped back into negative territory, declining 1.5% in 2Q24. The export-import balance heavily favored imports in 2Q24, as it did in 1Q24. Exports grew 2.0% in 2Q24, while imports were up 6.9%. Given the higher dollar value of imports, the net exports-imports balance subtracted about three-quarters of a percentage point (72 basis points, or bps) from overall 2Q24 GDP growth. We expect this category to remain volatile quarter over quarter. Another volatile character has been the change in private inventories. This category added 82 basis points to GDP in 2Q24, after subtracting 42 bps from 1Q24 GDP growth. Disruptions in the distribution channel began with the trade and tariff wars of 2017-2020 and included the supply-chain crisis in 2021-2022 and the supply-chain glut in 2023. We look for private inventories to maintain the excessive volatility in this series that has prevailed since the pandemic. Overall government spending was up 3.1% and added one-half of a percentage point to GDP growth. Federal spending increased 3.9% in 2Q24 after declining in 1Q24, while state and local government spending grew 2.6%. The price index for gross domestic purchases increased 2.3% in 2Q24, compared with an increase of 3.1% in 1Q24. And the PCE price index advanced 2.6%, down from 3.4% in 1Q24. The core PCE index also came down from 1Q24. Higher GDP with lower price increases in 2Q24 marked a real improvement from 1Q24, yet the stock market in August 2024 is in the midst of its worse sell-off since 2022, when inflation was running wild. Many of the concerns from investors are outside the GDP accounts. U.S. economic indicators generally suggest deceleration, although growth continues at a subdued level. The consumer economy continues to send mixed signals, with jobs and wages still growing - but at a meaningfully slower pace. The U.S. economy shocked with 114,000 new jobs in July, well below the consensus of 175,000. July was also well below the 12-month average of 215,000. The unemployment rate rose to 4.3% for July 2024 from 4.1% for June, and was up sharply from 3.5% a year earlier in July 2023. Average hourly earnings increased eight cents month to month for July and were 3.6% higher year over year. July annual wage growth represented a return to sub-4% growth; annual wage has mainly exceeded 4% since June 2021. Annual wage growth continues to run above inflation, but the premium has narrowed. Retail sales in June were tepid for a third straight month. After declining in 0.2% in April and edging up just 0.1% in May, June retail sales were virtually unchanged from the prior month. On a year-over-year basis, retail sales were up 2.3% in June, similar to May annual growth; that is down from consistent mid- to high-single-digit annual growth across 2023. Purchasing managers across the industrial economy have grown cautious. According to the Institute for Supply Management (ISM), the July manufacturing Purchasing Managers Index (PMI) remained in contraction territory -- below 50 -- for the fourth straight month and for the twentieth time in the past 21 months. ISM's manufacturing PMI came in at 46.8% for July 2024, down from 48% in June. This report reflected month over month declines in the production, order backlog, and employment indexes. ISM's services PMI has been a bright spot in the economy but it too has slipped into contraction territory, falling to 48.8% in June. That reflected a sharp five-percentage-point stepdown from May's figure of 53.8%. Before April 2024, the U.S. services sector grew for 15 straight months. The services economy is significantly larger than the manufacturing economy, and further weakening in this category would continue fears of a developing economic slow-down. Industrial production rose 0.6% in June, after rising 0.9% month over month in May. For the second quarter, industrial production increased 4.3% from the second quarter of 2023. June Capacity Utilization was 78.8%, edging up one tick from 78.7% in May. June capacity utilization was 0.9% below the long-run average. Straddling the commercial and consumer economies is housing. Consistent with the negative residential fixed-investment data from 2Q24 GDP, the housing economy continues to struggle. Based on SAAR (seasonally adjusted annual rate), and both new and existing home sales are running at about 60% of peak pandemic levels. At the same time, pent-up millennial demand for housing continues to intensify. Aging boomers have been locked into too-large homes by low mortgage rate. The plunge in interest rates accompanying the summer stock selloff could have a silver lining if it unlocks the housing market. Given the realities in the present environment, Director of Economic Research Chris Graja, CFA, lowered the Argus forecast for 2024 GDP growth to 1.7%, from a prior 2.0%. Looking at the cadence for the year ahead, Chris expects quarterly GDP to grow in the sub-2% range across all four quarters with some modest strengthening into 4Q24. Our expectations for 2025 GDP growth are in the 2% range. Given the overhang of high prices and interest rates, and with the consumer weary from years of inflation, our GDP growth forecasts for 2024 and 2025 are likely to remain volatile. We also continue to believe the U.S. economy can avoid recession in 2024, as it did in 2023 and 2022. The central bank started its rate-hiking campaign in March 2022 well behind the inflation curve. More than five percentage points later, the Fed halted in July 2023. At its mid-September 2024 FOMC meeting, the Fed voted to hold the fed funds rate steady at the 5.25%-5.50% tendency, as it has done for eight straight meetings since July 2023. The market mood has certainly changed, however. Weariness with inflation has given way to fear of recession. At the beginning of the central-banking rate-hiking campaign, investors feared that the fed had 'gotten behind the curve' in its fight against inflation. With inflation down to within a point of the Fed's 2% target, that now seems like the last war. Investors once again fear that the Fed has 'gotten behind the curve,' this time in its need to cut rates before the U.S. tips into recession. In July, the FOMC statement pushed back against recession fears, noting that economic activity 'continues to expand at a solid pace.' Although employment growth has moderated, the statement continued, unemployment has moved up but remains low. In May, the FOMC was concerned about '...lack of further progress toward the Committee's 2 percent inflation objective.' The language in the June FOMC report, by contrast, noted 'modest further progress toward the Committee's 2 percent inflation objective.' In July, the Fed echoed its 'further progress' commentary. The statement did acknowledge uncertainty in the economic outlook, and stated the Fed was 'attentive to risks on both sides of its dual mandate.' The Fed's dual mandate is to keep inflation around 2% and prevent unemployment from spiking higher. The Fed's preferred inflation gauge, the core PCE price index, rose 0.2% in June and was up 2.6% year over year. That matched the May annual number, which was the lowest annual rate of change the core PCE price index since March 2021 (and also the first time in the current economic cycle that inflation topped the Fed's 2% target). The core PCE data confirmed inflation inputs from June CPI reported earlier in July. The June all-items CPI declined 0.1% on a month-over-month basis from May; on an annual basis, June all-items CPI was 3.0%. Core CPI was up 0.1%, and the annual change in core CPI was 3.3%; both beat the 3.5% consensus call while ticking down from May. Goods inflation has come off markedly, while inflation in services is still stubbornly high. Overall improvement in inflation has been allowing market rates of interest to move down from spring peaks, but the selloff in stocks on recession fears has been the main rate driver this summer. The 10-year Treasury yield was 3.75% as of the first week of August, down from 4.29% at the end of June and the 4.63% level as recently as the end of April. The two-year Treasury yield was 3.88% as of the first week of August, down from 4.70% as of end of June and the peak level of 4.96% as of end of April. The two-year Treasury yield maintained its roughly 40 basis point (bps) premium to the 10-year yield for nearly two years. That premium has been whittled down to 12 bps in the current stock rout. Our forecasts continue to call for twos-10s inversion to end in the first quarter of 2025. We also see the potential for twos-10s inversion to end during 2024. Fears of recession have prompted calls for the Fed to cut interest rates immediately. Argus Fixed Income Strategist Kevin Heal continues to model two quarter-point rate cuts in 2024: once at the September meeting prior to the election, and again at the December meeting post-election. Each cut is expected to be 25 basis points, bringing the Fed's central tendency to the 4.75%-5.00% level by year-end. But the situation has become dynamic, to say the least. As shown in the CME FedWatch tool, the probability of a 25-bps cut at the September FOMC meeting prior to July nonfarm payrolls was 70%; and the probability of a 50-bps cut at the September meeting was 30%. After the bleak jobs report, the probabilities flip-flopped to 70% for a 50-bps cut and 30% for a 25-bps cut. By August 5, 2024, the CME FedWatch tool indicated a 98% probability that the Fed would cut interest rates by 50 bps at its September meeting. First-quarter 2024 earnings outpaced expectations, but were below the double-digit growth that prevailed in the pandemic and immediate post-pandemic era. Second-quarter 2024 earnings from continuing operations are up high-single-digit to low-double-digit percentages, according to our vendor survey. Along with GDP growth, second-quarter earnings represent a bulwark against growing recession concerns. With about three-quarters of S&P 500 component companies having reported results, second-quarter 2024 earnings from continuing operations are up 11.5% compared with 2Q23 EPS, according to FactSet, and up 12.9% according to Refinitiv. According to Bloomberg, 2Q24 earnings are up 12.5% on a share-weighted basis and 16.5% on a market-cap-weighted basis. This premium of market-cap-weighted to share-weighted EPS growth is reflective of the earnings outperformance of large-capitalization companies compared with small- and mid-caps. The average EPS decline for the negative-earnings group, which is heavily weighted in Energy, Materials, and Real Estate, is 16%. For the companies reporting positive EPS, average earnings growth is a robust 22%. A key reason investors are optimistic about second-half 2024 earnings growth is that the negative drag from Energy, Materials, and Real Estate is expected to diminish in 3Q24 and potentially reverse in 4Q24. At the sector level, the strongest earnings growth is coming from Financial, Information Technology, and Utilities -- all up in mid-teen percentages year over year. Other sectors reporting positive EPS growth include Communication Services, Healthcare, Consumer Discretionary, Consumer Staples, and Industrials, in descending order. As noted, Energy, Materials, and Real Estate are all down; Materials is off in high-single digits, while Energy and Real Estate earnings are down 20%-21% from a year earlier. Second-quarter earnings are coming in about in line with Argus expectations. For 2Q24, Argus continues to model high-single-digit continuing-operations EPS growth for S&P 500 component companies. We see a higher likelihood that our forecast misses on the upside than on the downside. In other words, once all the component companies are tallied, we are more likely to see low-double-digit EPS growth for 2Q24 than we are to see mid-single-digit EPS growth. According to Argus President John Eade, our stock-bond barometer is near equilibrium. Given declining inflation growth and interest rates along with our forecast for high-single-digit EPS growth for 2024 and 2025, coupled with the July-August selloff, stocks appear favorable at current levels. A key risk to valuations would be earnings growth failing to meet the market's targets and/or inflation or interest rates ticking higher. Either of those factors would result in elevated valuations, but represent just modest risks at present. Domestic and Global Markets Growth stocks sectors began to pull away from the broad market in May and extended that leadership in June. That was all turned on its head late in July, and August has so far extended the severe rotation away from growth leaders and toward stocks seen as safer havens. For the first quarter of 2024, the S&P 500 led the growth-heavy Nasdaq. But that changed in 2Q24 and, as of mid-year, the Nasdaq was three point ahead of the S&P 500. The indexes have flip-flopped once more, with the S&P 500 up 13% while the Nasdaq is up just over 12%. In a clear sign of leadership change, Wilshire Large Cap Growth has seen its premium to Wilshire Large Cap Value shrink to just seven percentage points; in May and June, this premium was in double-digit percentage point. With investors selling the giants, small-caps have narrowed their underperformance. The Russell 2000 was up about 5% in early August, after being up 2% at mid-year. The DJIA is also closing the gap and is up around 7% for the year. The Barclays Bloomberg U.S. Bond Index has also had a remarkable turnaround, rising 3.1% year to date after being down 1.7% at mid-year. We believe stocks can rally from here, given positive fundamentals in GDP and earnings. We do not expect bond yields to rise much from current levels, given that the Fed is likely to cut interest rates several times by year-end. Sector breadth had deteriorated at mid-year 2024 while remaining better than that at mid-year 2023. The July-August selloff has brought growth leadership down to earth while giving some formerly out of favor sectors room to catch up. Communication Services and Information Technology were both up in the high-20% range at mid-year. Both sectors surrendered six to nine points of appreciation in July and early August. Multiple sectors -- including Financial, Utilities, and Staples -- are currently beating or matching the index's 2024 performance. Industrial, Materials and Energy are up in mid- to high-single digits year to date. No sector is negative, and that was not true for most of 2024. The Consumer Discretionary sector, one of the top three performers in 2023, was tenth among 11 sectors in 2024 to date. Inflation has continued to weigh on consumer spending, although second-quarter GDP suggests that this pressure may be abating. Sector weights as of the end of 1Q24 were meaningfully changed from one year earlier, when the shift from cyclical and defensive sectors into growth sectors was just getting underway. Growth returned to favor in 2Q24, and June ended with the Information Technology sector representing a highest-ever 32.4% weighting within the S&P 500. In the third quarter, July started strong and multiple indices reached all-time highs at mid-month. In the second half of July, the market plunged with particular weakness in the growth sectors that had led the market for18 months. Notable sector losers in July were Information Technology, down 1.0 percentage point from its peak reading of 32.4% at the end of June; and Communication Services, down 0.4% at July-end from 9.3% at the end of June. Sectors that packed on the weight during turbulent July trading most notably included financial, up 0.7 percentage point in just a month as banks posted favorable earnings. Healthcare and Industrial sector weights also increased month over month in July. The rotation that was underway in July has intensified in August to date. Our recommended sector weightings are as follows: -- Overweight: Financial Services, Technology, Healthcare, and Communication Services. -- Market Weight: Consumer Discretionary, Utilities, Industrials, Energy, and REITs. -- Underweight: Consumer Staples and Materials. Like the U.S. market, global stocks did better in 2023 than they did in 2022; and most carried that momentum into mid-year 2024. Global stocks have also been impacted by the summer 2024 sell-off. Asia has been particularly weak, but this region led the market at mid-year and still remains near the top. Compared to 2023, we continue to some changes in international stock-market leadership in 2024. On average, our composite of global bourses is up about 5% year-to-date in 2024, after being up 7% the first half of the year. Currently, the U.S. is leading in 2024; but negative performances by Brazil and Mexico are weighing on Americas performance. In terms of our themes, mature economies are in front in 2024 with a 9% gain; this theme also won 2023 with a 22% gain. Asian markets are up 8%, as rising India and Japan are joined by China. Americas markets (including U.S., Brazil, Mexico and Canada) are up 2% in 2024 after rising 20% in 2023. BRICs-minus-Russia is up 2% in 2024 after also lagging in 2023. Resources economies (down 2%) have not lived up to last year's 18% gain. Conclusion Given its strong first-half start, the stock market is still up year to date. Recent turmoil is consistent with ongoing uncertainty. The nature of the presidential election changed dramatically over the past month. The Fed appears to be teeing up 50 bps or possibly even 75 bps of rate cuts by year-end. But no cuts appear likely until mid-September, leaving investors dangling. A double-digit win as of mid-year has predicted a much better-than-average full-year gain for stocks. Such strength at mid-year is consistent with an the average full-year gain for the S&P 500 of more than twice the market's average gain in all years since 1980. That statistic is little consolation at present, when everything that worked for the past year and a half suddenly seems to be falling. The distraction of the Olympics is ending, and the U.S. is about to go full-bore into election season. The jobs economy is notably decelerating. Amid the uncertainty, we will continue to stress the so-far solid fundamentals in the economy and in corporate earnings. At the stock level, we would maintain our focus on high-quality, BUY-rated companies in Argus coverage with blue chip finances, seasoned leadership teams, and sustainable advantage in key end-markets.

Monday Tee Up: Housing & Retail This is not a full trading week, with the Juneteenth holiday on Wednesday. But there will be retail sales and housing data to consider, as well as a handful of earnings. Wall Street will continue to digest the big flow of news from the last few weeks, including the Fed meeting and the recent data on inflation and jobs. The Dow Jones Industrial Average ended last week lower by 0.5%, the S&P 500 gained 1.6%, and the Nasdaq was up 3.2%. For the year, the DJIA is higher by 2%, the S&P is up 14%, and the Nasdaq has powered ahead by 18%. On the economic calendar, Tuesday brings Retail Sales, Industrial Production, and Capacity Utilization data. Thursday features Housing Starts. Friday delivers updates on Existing Home Sales and Leading Economic Indicators. At least seven Fed officials have public speaking engagements this week, and they likely will face questions about the 'dot plot' released last week -- which now indicates only one interest-rate cut this year. On the earnings calendar, Lennar reports on Monday; KB Home on Tuesday; Jabil, Kroger, Darden Restaurants, and Accenture on Thursday; and CarMax on Friday. The homebuilder earnings, coupled with the housing data, should paint a detailed picture of the state of housing. Overall earnings for 1Q came in 8% higher than in the same quarter last year. That's better than was expected before the reporting season started. We expect earnings to improve further in the second half of the year. For the full year, we forecast a 9.5% gain. Second-quarter earnings season kicks off on Friday, July 12, with the big banks stepping up to the plate. Last week, data showed some progress on inflation. CPI edged down to 3.3% for May versus 3.4% for April, while core CPI dipped to 3.4% from 3.6%. As expected, the Fed did not move on interest rates, but the dot plot surprised Wall Street with only one rate cut implied for this year. Despite that headline news, we still believe the Fed will cut twice this year and two more times in 2025. Mortgage rates dipped further below the 7% mark last week, to 6.95% for the average 30-year fixed-rate mortgage. Gas prices dropped again, to $3.43 per gallon for the average price of regular gas. The Atlanta Fed GDPNow indicator is forecasting for 2Q and calls for expansion of 3.1%. The Cleveland Fed CPINow indicator for June is at is 3.15%. The next Fed rate decision is at the very end of July, with odds for a rate cut at 10%. The odds pop to 68% for a cut in mid-September, to 80% for November 7, and to 96% for December 18.

Solid 1Q Leads into 2Q Uncertainty

We are one session away from making it 17 out of 19 weeks in which stocks have moved to the upside. We've been throwing grenades at this move for a while, based on overbought and divergent momentum readings and excessive sentiment readings -- and it just does not matter. Yes, price is the final arbiter!

Management's ability to "raise guidance" can often be a catalyst for market-beating returns in the quarters ahead. The fourth-quarter earnings season has crossed the 95% 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 10%, 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 53%. On the flipside, Energy (like last quarter) is performing the worst, down 22%. Our analysts are always on the lookout for companies that boost their outlooks during earnings season. Here is an initial list of BUY-rated companies in Argus' Fundamental Universe of Coverage at which management raised guidance or increased its outlook during the 4Q23 EPS reporting season.

What goes up in a straight line sometimes comes down in a straight line. Tuesday was a nasty day for stocks, but it could have been much worse if not for a late-day rip higher. The S&P 500 (SPX) was down 102 points or 2% at 3:20 pm, but rallied over 30 points to finish down 1.4%. The Nasdaq fell 1.8%, the Nasdaq 100 dropped 1.6%, the S&P MidCap 400 gave back 2.4%, and the Russell 2000 collapsed 4%.

It seems like there is some hesitancy among investors, this after the S&P 500 (SPX) approached that 4,800 level again. The SPX, Nasdaq, and Nasdaq 100 (QQQ) all closed higher on Wednesday -- but gave up some of their gains late in the session. With the December CPI and PPI reports due on Thursday and Friday, perhaps there is a valid reason for some hesitation. The market went back to the 2023 stalwarts on Wednesday, with Communication Services, Technology, and Consumer Discretionary leading the 11 S&P 500 sectors.

Monday Tee Up: Big Banks Check In

Price momentum on the major indices is pushing historical overbought levels, while breadth for the S&P 500 (SPX) and the Nasdaq 100 (QQQ) also is getting close to overbought levels. As well, certain sentiment indicators are at rarefied levels. Fortunately, these characteristics are much more common during the early to mid-phases of a bull market and are not seen together in a bear market.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

The major stock indices just completed four straight weeks of impressive gains and many believe it's clear sailing until the end of the year. When seasonals work, we hear about it constantly. When they don't, bad news will be blamed on "something." While the recent gains have been welcome, short- and intermediate-term momentum gauges are stretched -- so a pause/pullback would be a technical positive. There is an old saying: "There is only one free lunch on Wall Street." That references a pullback in the middle of December.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

As expected, the FOMC left the federal funds target at 5.25% to 5.5%. The CME FedWatch Tool is showing little chance of another hike and is leaning toward a potential 25-basis-point cut at the June 12, 2024, meeting. As we said recently, market rates have done the Fed's job of tightening financial conditions, although forecasting the current economy has been a fool's game, with most market seers and many, many economists, left licking their wounds.

Stocks were mostly higher on Friday morning following cooler-than-expected inflation data, though they gave up some of their strong early gains. The core personal consumption expenditures price index (PCE), excluding food and energy prices, rose 0.1% in August, down from a 0.2% increase in July and below the Reuters consensus forecast, which also called for a gain of 0.2%. The Dow fell 0.1%, the S&P rose 0.2%, and the Nasdaq rose 0.7%. Crude oil traded near $91 per barrel, while gold fell $9 to $1869 per ounce.

Stocks gave up early gains on Monday morning, led by declines in the Communication Services and Healthcare sectors, as investors awaited new data on inflation, consumer confidence, and GDP growth later in the week. On the earnings front, Carnival shares fell 11% after the cruise operator posted a narrower-than-expected fiscal 2Q loss but offered disappointing EPS guidance for the current quarter. The Dow, the S&P, and the Nasdaq were all down about 0.2%. Crude oil traded near $69 per barrel while gold rose $6 to $1936 per ounce.

Tuesday was an odd day for the stock market, with the major indices hit by broad sector weakness while market breadth was not terrible. We have talked about reversion to the mean and we saw that to a minor degree on Tuesday, as the Nasdaq and Nasdaq 100 fell a bit more than the NYSE and a lot more than the Russell 2000 (IWM), which lost only 0.5%. The Nasdaq, Nasdaq 100, and S&P 500 all fell 1.1%-1.3% and the S&P 100 (OEX) and NYSE dropped 1%.

Some of the strangest market-cap scenarios going back to 2018 come from the small-cap Russell 2000 (IWM) and the S&P 600 (SML) charts. Their performances have tracked each other since 2001. Data for the SML started at the end of 1994, while the IWM data started in May 2000.

Stocks gave up early gains on Thursday morning, extending their recent losses. GDP data pointed to slower growth and higher inflation. The Commerce Department said that the U.S. economy expanded at a 2.7% annualized rate in 4Q, down from its prior forecast of 2.9%. It also reported a 3.7% increase in the personal consumption expenditures price index, up from an initial estimate of 3.2%. On the employment front, first-time claims for state unemployment benefits fell by 3,000 to a seasonally adjusted 192,000 for the week ended February 18, below the Reuters consensus forecast of 200,000. The Dow fell 0.5%, the S&P 0.3%, and the Nasdaq 0.4%. Crude oil rose more than 1% to $75 per barrel, while gold fell $13 to $1829 per ounce.

A Hard 2022, an Uncertain 2023: Our Monthly Survey of the Economy, Interest Rates, and Stocks

Stocks plunged on Thursday morning, more than reversing Wednesday's gains, amid continued concerns about recession, rate hikes, and the impact of financial turbulence in the UK. In its third estimate, the Commerce Department said that second-quarter GDP contracted at a 0.6% rate, unchanged from its previous estimate, after a 1.6% decline in the first quarter. First-time claims for state unemployment benefits fell to 193,000 for the week ended September 24, below the consensus forecast of 215,000. The Dow fell 2.4%, the S&P 1.9%, and the Nasdaq 3.2%. Crude oil traded near $81 per barrel, while gold fell $16 to $1654 per ounce.

Investors live in a new world of volatility. The onset of COVID-19 ended the good old days of low Volatility Index readings. Since the peak VIX reading of 85 in March 2020, the VIX was slowly making progress back toward the mid-teen, enduring speed bumps along the way such as a recession, new COVID-19 waves, an extraordinarily divisive U.S. presidential election, and the Russian invasion of Ukraine. In the past few weeks, however, nerves have been rattled by surging inflation, an inverted yield curve, aggressive Federal Reserve rate hikes, and 2Q EPS results that aren't exactly blowing estimates out of the water. The S&P 500 is now down about 17% year-to-date and remains in a bear market. So far, the current bear market has lasted six months (versus an average 16 months) and the S&P 500 has fallen as far as 25% (compared to the historical average of 38%). What's next? That depends on inflation and the Fed. If CPI numbers start to fall back toward 5%-6% later this year, the Fed might wrap up its rate-hike campaign in 2022. That would cheer investors and could lift the S&P 500 back above 4,100. Still, the economy is teetering on the brink of recession, and a negative development out of Ukraine could knock GDP off course. In this environment, we recommend that investors focus on high-quality companies, with strong balance sheets and experienced management.

The trading week ended July 15 featured some terrible inflation data (CPI, PPI). While the stock market was weak following these numbers, the indices all saw nice intraday recoveries and then rallied hard on Friday of the week. All the major indices were down for the week, but it could have been a lot worse based on only the headlines. As we have said before, the numbers don't matter as much as the reaction to the numbers -- and that was positive (and certainly a change in recent character for the market).

The stock market was volatile again last week, with many issues and indices down but off their lows after a big turnaround on Thursday and large gains on Friday. The S&P 500 fell 2.4% for the week, the Nasdaq lost 2.8%, and the QQQs dipped 2.4%. The three indices are all below key chart support as well as key intermediate- to longer-term averages. We have seen a pretty good washout on multiple days, a potential contrarian positive. In addition, we had a 90% up volume day on Friday, the first since July 2021. That said, advancing issues/total issues came in at only 77%.

Last week the stock market extended its losing streak to five weeks. On Friday, the Dow Jones Industrial Average fell by 230 points, or 0.69%. The S&P 500 fell 1.30%, and the Nasdaq Composite dropped 2.18%. For the week, the DJIA was down 671 points, or 1.99%, while the S&P 500 was off 2.88%, and the Nasdaq Composite declined 3.53%. Year-to-date, the Dow is down 9.43%; and the S&P 500 is off 11.79%. The Nasdaq Composite extended its relative underperformance and is now down 17.90% year-to-date.

Stocks fell sharply on Friday morning following a mixed November employment report. The Labor Department said that the U.S. economy added just 210,000 payroll jobs last month, down from a revised 546,000 in October and well below the consensus forecast of 550,000. However, the official unemployment rate fell to 4.2% from 4.6% in October, and was below the consensus forecast of 4.5%. Average hourly earnings continued to increase, rising by 0.3% from October and by 4.8% from November 2020. The annual increase was slightly below the consensus forecast of 5.0%. The Dow fell 0.6%, the S&P 1.0%, and the Nasdaq 2.1%. Crude oil rose $2 to $68.50 per barrel, while gold rose $10 to $1772 per ounce.

Vickers Stock Research, a subsidiary of Argus Research Group, tracks and analyzes insider trading and institutional ownership trends. Form 13-Fs are due 45 days after the end of calendar quarters, and have now come in from 2Q21. We like to review the 13Fs of the major activist investors, including Carl Icahn, Trian Fund Management, Jana Partners, and ValueAct Holdings, among others. Activist investing has evolved in recent years and is now less about generating a short-term return on an underpriced stock and more about achieving long-term returns through an active management/investor partnership. Here are some recent new purchases and key holdings of activist investors, according to Vickers.

Argus Outlook for Growth Sectors

Consumers are now more willing to spend on lifestyle enhancements along with necessary spending on life-saving treatments. In addition, the survival of the Affordable Care Act has kept the ranks of insured U.S. citizens above the historical average, further increasing consumer spending on healthcare services and products. Meanwhile, companies with experience in diagnostic testing, vaccines, and antiviral medicines, as well as suppliers of protective equipment and other hospital products, should benefit from efforts to contain the coronavirus pandemic. The sector accounts for 13.0% of the S&P 500, and includes companies in the pharmaceuticals, medical devices, healthcare services, and insurance industries. The sector is underperforming the market thus far in 2021, with a gain of 12.9%. We think the sector should account for 15-17% of diversified portfolios. Here is how we use our analysts' Financial Services sector ideas in our Focus List and Model Portfolios. All stocks are rated BUY at Argus.

Vickers Stock Research, a subsidiary of Argus Research Group, tracks and analyzes insider trading and institutional ownership trends. Form 13Fs are due 45 days after the end of calendar quarters, and are just now coming in from 1Q21. We like to review the 13Fs of the major activist investors, including Carl Icahn, Trian Fund Management, Jana Partners, and ValueAct Holdings, among others. Activist investing has evolved in recent years and is now less about generating a short-term return on an underpriced stock and more about achieving long-term returns through an active management/investor partnership. Here are some recent new purchases and key holdings of activist investors, according to Vickers.

The stock market was volatile last week as inflation concerns whipsawed stocks, ultimately pushing them lower on the week. During Friday's session, the Dow Jones Industrial Average increased 361 points, or 1.06%. The S&P 500 was up 1.49%, and the Nasdaq Composite was up 2.32%. For the week, the DJIA was down 397 points, or 1.14%, the S&P 500 was down 1.39%, and the Nasdaq Composite was down 2.34%. Year-to-date, the DJIA is up 12.34%, the S&P 500 is up 11.12%, and the Nasdaq Composite is up 4.20%.

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

Fourth-Quarter 2020 Summary & Market Outlook for 2021

Stocks continued their rotational rally on Tuesday, sending consumer service, energy, financial and other long-out-of-favor sectors and industries higher. Investors simultaneously pulverized this year's winners in the digital-enablement category, with particular wrath toward the FAANG stocks.

Stocks rose on Friday, finishing off a strong week that saw major indexes climb higher. Riskier equities outperformed blue chips, a trend that was commonplace during the early weeks of the recovery. On Friday, the Dow Jones Industrial Average gained 162 points, or 0.6%. The S&P 500 was up 0.7% and the Nasdaq Composite was up 0.6%. For the full week, the Dow was up 2.6%, the S&P 500 was up 3.3% and the Nasdaq gained 3.4%. Year-to-date, the DJIA crossed into positive territory this week, and is up 0.4%, the S&P is up 8.6%, and the Nasdaq is up 30.4%. Over the past 52 weeks, the Dow is up 8.5%, the S&P 500 is up 19.9%, and the Nasdaq is up 46.9%.

Certain U.S. indices are back in the green for 2020, and the S&P 500 is down only 5% year-to-date. Is there any reason for investors to look overseas as the world continues to recover from the COVID-19 pandemic? In past commentaries, we found little about which to be excited -- and so our focus has been on the U.S. equity market. But now, there is some excitement internationally from both developed and emerging markets.

Stocks rebounded from a sharply lower open on Friday to close up modestly. Increasing tensions with China and a worse-than-expected retail sales figure for April hurt sentiment in the early going. The Dow Jones Industrial Average increased 0.3%, the Nasdaq Composite advanced 0.8% and the S&P 500 added 0.4%. But comments earlier in the week from Federal Reserve Chairman Powell noting that the U.S. economy still faces significant downside risks weighed on stocks, leading to full week losses of 2.7% for the Dow, 1.2% for the Nasdaq and 2.3% for the S&P 500. Year-to-date losses are now 17.0% for the Dow and 11.4% for the S&P 500, while the Nasdaq clings to a gain of 0.5%.

About five years ago, biotechnology was all the rage. It was like the technology (dot.com) bubble all over again. While mega-cap biotech names were responsible for the majority of the gain in the largest biotech ETF (the iShares Nasdaq Biotechnology, or IBB), there were huge sums of money made and lost in the smallest of issues. Many tiny biotech names -- often with barely a product in Phase 1 trials or with just a pipe dream of an idea -- were flying.

AmerisourceBergen is a leading global third-party logistics provider engaged in wholesale pharmaceutical sourcing and distribution of specialty, brand-name, and generic pharmaceuticals and related services to acute-care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and alternate site pharmacies, physician practices, dialysis clinics, and other healthcare customers. By acquiring smaller companies, management has attained the ability to compound sterile preparations, distribute veterinary pharmaceuticals and vaccines, transport biopharmaceuticals, and provide inventory and reimbursement consulting services to providers.

Despite our technical call for a short-term pullback, we still believe the market has further to run in 2020. With the S&P 500 climbing since the first part of October, the index is getting close to the top of our initial target zone of 3,300 to 3,400. So we will elaborate a bit on some potential "500" technical targets. But remember, targets should never be set in stone; they are just an educated guess.