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The S&P 500 Is NOT the U.S. Economy! Zacks August Strategy Report

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The following is an excerpt from Zacks Chief Strategist John Blank’s full Aug Market Strategy report To access the full PDF, click here



To August 6th, the YTD S&P 500 index gain was +3.2%. We closed at 3,349.

At the index level, the last few months have been good. Solely due to bulls.

The bears won during March. On July 1st, the YTD S&P 500 loss stood at -4.0%. On May 5th, the YTD loss was -12.0%. On April 5th, the YTD decline was a whopping -23.0%.

What the submerged factor in all of this? Historically high S&P 500 index concentration.

The five most valuable S&P 500 companies — Apple (AAPL - Free Report) , Microsoft Corp (MSFT - Free Report) , Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) and Facebook (FB - Free Report) — account for some 23% of the index's market capitalization.

That is the highest 5-stock concentration level on record, according to Goldman Sachs.

The S&P 500 may not reflect the U.S. economy. But the broader stock market does.

Here are some specific stock market industries that are suffering mightily:


  • Department Stores -62.6% YTD
  • Airlines -55%
  • Travel Services -51.4%
  • Oil & Gas Equipment/Services -50.5%
  • Resorts and Casinos -45.4%
  • Hotel REITS -41.9%

A “Don’t Fight the Fed” rally sounds apropos. But there is much more to this…

  • Over March, the S&P 500 fell -16.3% due entirely to virus shutdowns. Swift Fed action stabilized corporate bond markets.
  • In early April, the Federal Fiscal CARES stimulus act passed. Then, the U.S. Congress got a 2nd supplemental funding bill passed, with more small business loans. Another set of Federal fiscal measures is likely on the way this summer.
  • In early August, international travel shutdowns are in place for U.S. citizens. But U.S. state governors have mostly lifted their “Stay-at-Home” decrees.
  • In early June, a number of European shutdowns ended, and all 50 U.S. states were reopened for business. Yet, we do see ‘2nd wave’ shutdowns now.
  • Sometime in August, the U.S. Federal Government will pass new stimulus legislation. We have a Nov. 3rd election as an incentive.
  • After reaching 30k to 35K coronavirus cases a day across April, the U.S. made it to ~20K cases a day in early June.

Then, the virus surged back. The number of new COVID19 U.S. cases was at roughly 60K new cases a day in early August.

But the number of new U.S. virus cases appear to decline over the last week of July…


Zacks August Sector/Industry/Company Telescope

The Zacks Industry Ranks shows an interesting set of patterns.

Bet on non-U.S.-led sectors for once!

The most internationally exposed sectors (Materials, Info Tech and Energy) are leading the pack. That says the high virus counts in the USA — and better virus management outside it — is a major Zacks Rank earnings estimate factor in August.

Industrials and Consumer Discretionary got upgrades this month, but are middle of the pack, at best.

Financials remained Unattractive. At the back, we see the usual defensive sector of Utilities.

In sum, this market is betting on a cyclical rebound already.

(1) Materials stayed at Very Attractive for August. Building Products/Construction Materials, Paper, Metals Non-Ferrous (Gold and Silver miners) and Steel look great.

Zacks #1 Rank (STRONG BUY) Stock: Freeport-McMoRan (FCX - Free Report)

Based in Phoenix, AZ, Freeport-McMoRan Inc., formerly Freeport-McMoRan Copper & Gold Inc., is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; as well as the smelting and refining of copper concentrates.

(2) Info Tech stayed Attractive. Misc. Tech and Semis lead. Computer-Software Services is a market weight.

Zacks #1 Rank (STRONG BUY) Stock: Teradyne (TER - Free Report)

Headquartered in North Reading, MA, Teradyne Inc. is a leading provider of automated test equipment. The company is primarily focused on the semiconductor test market, which generates the bulk of its revenues. It also provides specialized system testing equipment for specific end-markets.

(3) Energy stayed Attractive. Oil & Gas Integrated looked the best.

Zacks #1 Rank (STRONG BUY) Stock: CNOOC Limited (CEO - Free Report)

CNOOC is a company that engages primarily in the exploration, development and production of crude oil and natural gas offshore China. It is the only firm in China allowed to conduct exploration and production activities with international oil and gas companies in the offshore region.

(4) Communications Services stayed Attractive. Utility-Telephone looks great.

(5) Health Care is a high Market Weight. But all three groups are solid.

(6) Consumer Discretionary rose to Market Weight. Home Furnishing-Appliance and Consumer Electronics look great. The “Stay-at-Home” plays.

(7) Consumer Staples stayed Market Weight. However, Agri-business is a winner.

(8) Financials stayed Unattractive. Investment Banking & Brokers again the sole winner.

(9) Industrials rose to Unattractive from Very Unattractive. Construction Building-Services, Machinery, Railroads & Trucking and Conglomerates lead.

(10) Utilities fell to Very Attractive. Utilities-Water Supply is the positive play.


This latest S&P 500 bull run remade an old point.

Attempting to time stock market investments based on economic data and the underlying health of the U.S. economy is perilous, at best.

Yes. The stock market has historically turned down prior to the peak in the economic cycle — with the one exception of the coronavirus recession.

But more careful studies have shown us: Whether the S&P 500 index troughs before or after the trough in the U.S. economy, as well as the lead/lag times, these moves have been completely random.

In turn, contrast a huge S&P 500 rally — with an equally huge swath of the U.S. equity market still in severe bear market territory.

This “money-printing Fed”-driven rally proved once again.

How fruitless closely tracking top-line macro data has been for equity returns.

Happy Trading!


John Blank

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