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Time to Recover Lost Ground: Zacks MARCH Market Strategy

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

 

For 2020, the S&P 500 earnings scorecard is now marking -11.2% EPS annual growth and -1.0% revenue growth.

In terms of underlying earnings, major USA publicly-listed firms have serious fundamental ground to recover in 2021.

Still, the USA is making progress these days…

As of Feb. 26th, Q420 earnings for S&P 500 companies are up +3.9%.

If +3.9% is the actual growth rate for the quarter, it will mark the first quarter in which the S&P 500 index has reported a year-over-year earnings growth since Q4 2019:

 

  • Q1-2021 is expected to supply S&P 500 earnings growth of +21.5%.
  • The estimated (year on year) EPS growth rate for the S&P 500 for 2021 is +23.9%. This is more than double the 10-year average (annual) EPS growth rate of +10.0%.


If +23.9% is the actual growth rate for 2021, it will mark the largest annual EPS growth rate for the index since 2010 (+39.6%).

That unusually large 2021 growth rate can be attributed to both an easy comparison to:

 

  • Weak EPS in 2020 due to COVID, and
  • Expected improvement in EPS in 2021 from huge stimulus packages and vaccine-driven mobility improvement


How did the stock market price all of this in?

Next are March 1st, 2021 YTD S&P 500 sector returns:

7 early winners were:

Energy $XLE: +25.9%,  
Financials $XLF: +9.2%,
Communication Services $XLC: +4.6%,
Industrials $XLI: +2.0%,
Real Estate $XLRE: +1.9%,
Materials $XLB: +1.2%,
Info Tech $XLK: +0.1%,

4 losers were:

Consumer Discretionary $XLY: -0.6%,
Health Care $XLV: -1.0%,
Utilities $XLU: -7.4%,
Cons. Staples $XLP: -6.7%,

The next section shows: this set of cyclically-biased S&P 500 sector share returns does map into the Zacks Sector and Industry Rank order this month.

Zacks March Sector/Industry/Company Telescope

The Zacks Rank system showed 4 strong sectors, again, which is durably bullish.

Info Tech was a top sector again this month; strong across many industries.

Two internationally exposed sectors – Materials and Industrials – came in at the top again too. Think about Steel, Paper, Metals-Non-Ferrous and Machinery-Electrical, Construction-Building Services, and Metal Fabricating.

Financials was the 4th great sector, with Investment Banking & Brokering, Banks & Thrifts, and Major Banks strong. Rate spreads and higher saving rates help.

Health Care stayed at a Market Weight. But Medical Products led this month.

Energy and Utilities were at Market Weight, too.

(1) Info Tech stayed Very Attractive. Misc. Tech, Computer-Office Equipment, Telco Equipment, and Electronics, all of those look excellent.

Top Zacks #1 Rank (STRONG BUY) stock: Canon, Inc. (CAJ - Free Report)

(2) Materials stayed Very Attractive. Steel, Metals-non-Ferrous and Paper remained very strong.

Top Zacks #1 Rank (STRONG BUY) stock: Weyerhauser Company (WY - Free Report)

(3) Industrials stayed Very Attractive. Machinery-Electrical, Construction-Building Services, Metal Fabricating, Pollution Control and Machinery were the top industries.

Top Zacks #1 Rank (STRONG BUY) stock: Advanced Drainage Systems (WMS - Free Report)

(4) Financials stayed Very Attractive. Investment Banking, Banks & Thrifts and the Major Banks looked good. Higher rate spreads and savings help all of these.

(5) Consumer Staples fell back to Market Weight. Agribusiness looked the best.

(6) Consumer Discretionary stayed Market Weight. Consumer Electronics and Apparel, were strong, and showed the Internet buyer remains strong.

(7) Health Care stayed at Market Weight. Medical Products is the best.

(8) Communications Services stayed at Market Weight. Telco Equipment was a very strong spot.

(9) Utilities rose to Market Weight from Unattractive.

(10) Energy rose to Market Weight from Unattractive. Oil & Gas Integrated looked best.

Conclusion

There is yet another way to mark the recovery of lost ground due to COVID:

That is from the perspective of U.S. macroeconomic growth accounting:

 

  • For 2020, Zacks call is for -3.5% U.S. real GDP growth; in line with a February 2021 Consensus Economics average
  • For 2021, the U.S. economy will mark a +4.7% snapback
  • For 2022, that same consensus shows a +3.6% U.S. real GDP growth rate


This is a different set of economy-wide growth data showing the same thing.

The USA is going to recover the ground lost to the pandemic — more quickly than many may have expected.

Happy trading and investing.

Warm Regards,

John Blank

 

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