The following is an excerpt from Zacks Chief Strategist John Blank’s full Sep Market Strategy report To access the full PDF, click here.
Welcome to the Top-Down COVID Trading Landscape
On September 4th, the annualized Q3 “bottoms-up” EPS decline stood at -22.4%.
- Q2 finished at $28.21, while
- Q3 was estimated at $32.65
- Sadly, compare this to $41.78 in Q4-19
When shutdowns started around March 31st, the revenue growth rate for Q2-20 was pegged at -1.6%. After COVID, the Q2-20 revenue growth rate got revised to -9.3%. Q3 revenue growth is estimated at -4.1% in early September.
But bulls have a fundamental catalyst in hand. Analysts are raising earnings estimates for S&P 500 companies on Q3. This makes ‘bottoms-up’ estimates rise for all of 2020.
The 2020 S&P 500 sector YTD returns to September 8th are as follows:
Info Tech $XLK: +22.8%
Consumer Discretionary $XLY: +21.1%
Communication Services $XLC: +9.9%
Health Care $XLV: +1.8%
Cons. Staples $XLP: +1.5%
Materials $XLB: +2.7%
Utilities $XLU: -9.2%
Real Estate $XLRE: -7.8%
Industrials $XLI: -6.5%
Financials $XLF: -20.2%, and
Energy $XLE: -45.1%
Next, I can show you: earnings estimate revisions are indeed driving these sector stock returns.
September Zacks Industry Ranks Showed Top-Down Stock Investors This Stack
In early September, the most globally exposed sectors of Materials and Info Tech led the S&P 500 forward.
Industrials and Consumer Discretionary sectors got Zacks Industry Rank upgrades. This spells out greater confidence in a broad recovery in spending, both from corporate entities and individuals.
Energy stocks have stalled. The WTI oil price benchmark went from $60 a barrel in January to below zero a barrel on April 20th. It rebounded to $25 on May 5th and $37 a WTI barrel on September 9th.
The Zacks Industry Ranks shows a U.S. and global suppression recovery pattern, other than Financials, which are holding the bag on virus losses.
Once again, bet on a couple of non-U.S.-led sectors!
(1) Materials stayed Very Attractive. Building Products/Construction Materials, Paper, Metals Non-Ferrous (Gold and Silver miners) and Steel look great again.
Top Zacks #1 Rank Stock: Boise Cascade (BC - Free Report)
(2) Info Tech rose to Very Attractive from Attractive. Office Equipment, Misc. Tech and Telco Equipment. Computer-Software Services was upgraded, too.
Top Zacks #1 Rank Stock: Ultra Clean Holdings (UCTT - Free Report)
(3) Communications Services rose to Very Attractive. Telco-Equipment and Utility-Telephone were the most positive with analysts.
Top Zacks #2 Rank Stock: Avaya Holdings (AVYA - Free Report)
(4) Consumer Discretionary tipped up to Attractive. Home Furnishing-Appliance looks great. Autos-Tires-Truck got upgraded. The “Stay-at-Home” plays.
(5) Industrials rose to Attractive from Unattractive. Construction Building-Services, Machinery, Machinery-Electrical and Railroads & Trucking lead.
(6) Health Care is a high Market Weight. Medical Care leads. But all groups solid.
(7) Energy fell to Market Weight. It is now the Drillers that look the best.
(8) Consumer Staples stayed Market Weight. Agri-business stayed the better choice.
(9) Financials stayed firmly Unattractive. Investment Banking & Brokers a lonely winner.
(10) Utilities stayed Very Unattractive.
In sum, traders can safely bet on a cyclical rebound, with Info Tech staying a leader.
Remote working universe(s) are clearly driving earnings — for a number of major companies tied into the Info Tech sector.
Happy Trading to all!
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>