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Time to Buy U.S. Stocks in October? Zacks Market Strategy

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

 

I. Introduction

I am neutral. The S&P 500 is 3,420 and my end-of-year target is firm at 3,400.

Zacks strategists (including me) stay bullish. The S&P 500 can hold onto 3,400 at year-end 2020.

Over the 2 years before COVID hit, markets had to climb two walls of related worry: trade wars and recession fear.

Now, they must look past a variety of Public Health driven suppressions to some type of Public Health recovery. This is looking K-shaped, not V-shaped; meaning there are two tracks, not one.

 

Bulls rosily envision 2021 U.S. and global EPS snapbacks:

  • For 2021, analysts project S&P 500 EPS growth of +25.7% and revenue growth of +8.0%
  • Q4-20 EPS estimates are at -12.7%
  • Q3-20 EPS estimates are at -21.0%
  • Q2-20 was down -31.6%. Q1-20 was down -14.6%.
     

Bears? They saw slowdown signals across 2019: Q4-19 was -0.3%. Q3-19 was -2.1%. Q2-19 was -0.1%. Q1-19 was -0.3%.

You must look further back to 2018 for optimism:

  • Q4-18 earnings marked +13.3%, a fifth double-digit quarter in a row
  • Q3-18 was +26.1%
  • Q2-18 was +25.0%
  • Q1-18 was +24.7%
     

Here’s the mantra — Don’t fight the Fed. Don’t fight the ECB in Europe, the BoE in the U.K., the BoJ in Japan, and the People’s Bank of China.

All major central bank players brought out the “anything goes” monetary policy artillery.

Early in 2020, with their internal virus shutdown underway, Chinese authorities ramped up monetary support.

The world followed suit.

U.S. and non-U.S. money authorities will stay uber-accommodative and creative in 2021 and beyond.

A (second) fundamental bull case is for vastly improved testing, treatment, and a cure for the novel virus.

The medical and scientific world is on it.

II. Zacks October Sector/Industry/Company Telescope

Zacks Industry Ranks shows one obvious leader.

It is one we don’t usually see.

One internationally exposed sector (Materials) led again. There is really no weak industry group in the whole sector.

That is significant.

Info Tech was pushed back, after being attacked by the U.S. government. It was election time related.

Industrials also stayed Attractive, showing the U.S. consumer and U.S. industrial spending revival going on.

Consumer Staples got an upgrade, while Consumer Discretionary got a downgrade. That says the rise of U.S. virus counts and the change of weather means something.

At the back, Financials remain Unattractive. The Fed extended its dividend restrictions.

(1) Materials stayed Very Attractive.

Steel, Metals Non-Ferrous (Gold and Silver miners) Building Products/Construction Materials and Paper look great again. Chemicals and Containers & Glass are solid too.

Top Zacks #1 Rank (STRONG BUY) Stock: Apogee Enterprises (APOG - Free Report)

(2) Industrials stayed Attractive.

Airlines (really!), Construction Building-Services and Industrial Products-Services were the top industries.

Top Zacks #1 Rank (STRONG BUY) Stock: FedEx (FDX - Free Report)

(3) Health Care rose to Attractive from Market Weight.

Medical Care leads. But all groups solid.

Top Zacks #1 Rank (STRONG BUY) Stock: RadNet (RDNT - Free Report)

(4) Consumer Staples
rose to Attractive from Market Weight.

Consumer Product-Misc. Staples, & Food/Drug Retail are the two most attractive industries.

(5) Consumer Discretionary fell back to Market Weight from Attractive.

Other Consumer Disc. and Home Furnishing-Appliances lead. Autos/Tires/Trucks solid.

(6) Communications Services fell to Market Weight from Very Attractive.

Utility-Telephone was a strong spot.

(7) Energy stayed Market Weight.

Coal and Energy-Alternates look best.

(8) Utilities rose to Market Weight from Very Unattractive.

(9) Info Tech fell to Unattractive from Very Attractive.

Telco Equipment. Computer-Software Services were best, but middle of the road.

(10) Financials stayed firmly Unattractive.

Investment Banking & Brokers is best, but middle of the road.

III. Conclusion

This month, I also focused heavily on the progress being made on vaccines.

The World Health Organization quote I liked best is reproduced below…

"When we are looking at the target of COVAX, it's by the end of 2021 that they are trying to come up with the first 2 billion doses that will be allocated to all countries who are participating."

-- WHO Western Pacific Region Coordinator Socorro Escalante, on current progress of vaccine trials. Published October 6th, 2020.

The primary virus vaccine platforms are: mRNA, Ad Vector, Subunit, DNA and rVSV.

There is much nuance to learn.

Virus candidates (not in China or Russia) are developing out of the USA, Western Europe, Australia, Canada and Japan, mainly.

Many platform categories are very novel ways to create a vaccine.

Read more about them in the Zacks October Market Strategy report.

That’s it for me.

Regards,

John Blank

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