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Welcome to Zacks Market Strategy for August 2016. Here are three key things that matter to the stock markets.
A Forward Look on S&P 500 Earnings – It’s All-Important
Consensus sees a -0.3% in EPS growth for 2016 and a hockey stick +13.3% for 2017. In 2015, the S&P 500 saw -0.8%. In 2014, it saw +5.1%. Consensus uses +1.8% for 2016 and +5.9% for 2017 as fresh revenue growth comps.
Second, Keep an Eye on the Small Caps
Russell 2000 stocks lead as markets go “Risk-on.” Fast-growing small U.S. companies beat consensus more easily. A 2016 “risk-on” rally remains my call into the fall, after two years of poor performance.
Finally, Keep an Eye on Manufacturing
The U.S. ISM manufacturing PMI is strengthening. At 52.6 in July and 53.2 in June, a big lift took place from the 50.7 in May, 50.8 in April, 51.5 in March, and 51.3 in Feb. Companies have benefited from a mild pullback in the value of the U.S. dollar that makes U.S. goods less expensive. Consumer demand at home has also been steady. Higher oil prices ease pressure on energy firms to slash investment.
The global manufacturing sector showed a little life too. At 51 in July, the J.P. Morgan Global Manufacturing PMI™ registered a better reading to signal an early bounce to industry growth. Japan remains weakest among developed areas. China is flat. Brazil looks worst at 46, but that PMI read is bouncing. Russia broke 50.
Zacks Sector/Industry/Company Telescope for August
Winners: The usual strong sector plays -- Health Care and Info Tech -- showed up again. That means hot Medical Care and Drugs for Health Care industries and the hot Semiconductor industry for Info Tech.
Noted upgrades to Metals-non-Ferrous and Steel industries speak for themselves. Those upgrades led to Materials getting back to Attractive in August. In Industrials, note a pull for service business spending on cap-ex.
Losers: Clearly, there are issues of overconsumption/satiation playing out here. Apparel, Autos/Tires/Trucks and Home Furnishings/Appliances don’t have any more lift in them, it appears lately. Consumer Discretionary is the big loser.
(1) Health Care remains the perennial Very Attractive sector. Medical Care is tops here, followed by Drugs.
Hot Stock #1:Wellcare Health is a Zacks #1 Rank (STRONG BUY)
WellCare Health Plans, Inc. provides managed care services targeted exclusively to government-sponsored healthcare programs, focusing on Medicaid and Medicare.
(2) Info Tech remains Very Attractive. The Semiconductors lead the way again. Misc. Tech looks good too.
Hot stock #2: Qorvo (QRVO - Free Report) is a Zacks #1 Rank (STRONG BUY)
Qorvo is a provider of technologies and RF solutions for mobile, infrastructure and aerospace/defence applications. The Company operates through two subsidiaries: RF Micro Devices and TriQuint Semiconductor.
(3) Materials are Attractive. Metals-Non-Ferrous and Steel are leading the way now. Building Products/Construction Materials also looks good.
Hot Stock #3: Cliffs Natural (CLF - Free Report) is a Zacks #2 Rank (BUY)
Cliffs Natural Resources, formerly Cleveland-Cliffs is an international mining company, a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry.
(4) Industrials are Market Weight. This was a noted sector UPGRADE. The Industrial Products-Services, Business Products and Business Services industries show the way. Cap-ex in service businesses are expanding.
(5) Energy stayed a Market Weight. The Oil E&P guys and Oil & Gas Integrated are doing well. The Drillers, Coal, and Energy-Alternates, and Oil Misc. are doing poorly. The recent WTI oil price decline to $40 and below is not good news.
(6) Telcos remain a Market Weight
(7) Utilities remain a Market Weight.
(8) Consumer Staples fell to Unattractive. Food/Drug Retail and Food, Soaps & Cosmetics, Beverages, all look poor. Agri-business looks terrible.
(9) Financials remain Unattractive. The best industries are Real Estate and Banks & Thrifts.
(10) Consumer Discretionary stayed at Very Unattractive. Apparel, Autos/Tires/Trucks and Home Furnishing/Appliances industries all looked poor.
Image: Bigstock
Keep Your Eyes on the Road Ahead: Zacks August Market Strategy
The following is an excerpt from John Blank’s full Market Strategy report. To access the full PDF, click here.
Welcome to Zacks Market Strategy for August 2016. Here are three key things that matter to the stock markets.
A Forward Look on S&P 500 Earnings – It’s All-Important
Consensus sees a -0.3% in EPS growth for 2016 and a hockey stick +13.3% for 2017. In 2015, the S&P 500 saw -0.8%. In 2014, it saw +5.1%. Consensus uses +1.8% for 2016 and +5.9% for 2017 as fresh revenue growth comps.
Second, Keep an Eye on the Small Caps
Russell 2000 stocks lead as markets go “Risk-on.” Fast-growing small U.S. companies beat consensus more easily. A 2016 “risk-on” rally remains my call into the fall, after two years of poor performance.
Finally, Keep an Eye on Manufacturing
The U.S. ISM manufacturing PMI is strengthening. At 52.6 in July and 53.2 in June, a big lift took place from the 50.7 in May, 50.8 in April, 51.5 in March, and 51.3 in Feb. Companies have benefited from a mild pullback in the value of the U.S. dollar that makes U.S. goods less expensive. Consumer demand at home has also been steady. Higher oil prices ease pressure on energy firms to slash investment.
The global manufacturing sector showed a little life too. At 51 in July, the J.P. Morgan Global Manufacturing PMI™ registered a better reading to signal an early bounce to industry growth. Japan remains weakest among developed areas. China is flat. Brazil looks worst at 46, but that PMI read is bouncing. Russia broke 50.
Zacks Sector/Industry/Company Telescope for August
Winners: The usual strong sector plays -- Health Care and Info Tech -- showed up again. That means hot Medical Care and Drugs for Health Care industries and the hot Semiconductor industry for Info Tech.
Noted upgrades to Metals-non-Ferrous and Steel industries speak for themselves. Those upgrades led to Materials getting back to Attractive in August. In Industrials, note a pull for service business spending on cap-ex.
Losers: Clearly, there are issues of overconsumption/satiation playing out here. Apparel, Autos/Tires/Trucks and Home Furnishings/Appliances don’t have any more lift in them, it appears lately. Consumer Discretionary is the big loser.
(1) Health Care remains the perennial Very Attractive sector. Medical Care is tops here, followed by Drugs.
Hot Stock #1: Wellcare Health is a Zacks #1 Rank (STRONG BUY)
WellCare Health Plans, Inc. provides managed care services targeted exclusively to government-sponsored healthcare programs, focusing on Medicaid and Medicare.
(2) Info Tech remains Very Attractive. The Semiconductors lead the way again. Misc. Tech looks good too.
Hot stock #2: Qorvo (QRVO - Free Report) is a Zacks #1 Rank (STRONG BUY)
Qorvo is a provider of technologies and RF solutions for mobile, infrastructure and aerospace/defence applications. The Company operates through two subsidiaries: RF Micro Devices and TriQuint Semiconductor.
(3) Materials are Attractive. Metals-Non-Ferrous and Steel are leading the way now. Building Products/Construction Materials also looks good.
Hot Stock #3: Cliffs Natural (CLF - Free Report) is a Zacks #2 Rank (BUY)
Cliffs Natural Resources, formerly Cleveland-Cliffs is an international mining company, a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry.
(4) Industrials are Market Weight. This was a noted sector UPGRADE. The Industrial Products-Services, Business Products and Business Services industries show the way. Cap-ex in service businesses are expanding.
(5) Energy stayed a Market Weight. The Oil E&P guys and Oil & Gas Integrated are doing well. The Drillers, Coal, and Energy-Alternates, and Oil Misc. are doing poorly. The recent WTI oil price decline to $40 and below is not good news.
(6) Telcos remain a Market Weight
(7) Utilities remain a Market Weight.
(8) Consumer Staples fell to Unattractive. Food/Drug Retail and Food, Soaps & Cosmetics, Beverages, all look poor. Agri-business looks terrible.
(9) Financials remain Unattractive. The best industries are Real Estate and Banks & Thrifts.
(10) Consumer Discretionary stayed at Very Unattractive. Apparel, Autos/Tires/Trucks and Home Furnishing/Appliances industries all looked poor.
This article is an excerpt from John Blank’s full Market Strategy report. To access the full PDF, click here.