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

I. U.S. Stock Markets Continue to Build on a Successful First Half of 2021

As of August 3rd, 2021, USA returns strength shown remains both broad and deep:

• The Nasdaq (the U.S. tech heavy large cap index) was up +14.5% YTD
• The DJIA (more industrial weight) was up +14.7%
• The S&P 400 (the biggest stocks by market cap) was up +17.4%
• The S&P 500 (the benchmark U.S. large cap index) was up +17.8%
• The S&P 600 (a major U.S. small cap index) was up +20.2%

A fundamental earnings engine drove that returns progress. This year, Zacks expects total earnings for the S&P 500 index to be up +40.6% on +11.6% higher revenues. Next year, total 2022 S&P 500 index earnings should be up +9.6% on +6.6% higher revenues.

And as the Zacks quarterly earnings chart provided by Research Director Sheraz Mian shows, the Q2 EPS growth rate is now at an incredible +88.3%, with revenue growth at +22.2%. The Q3 EPS numbers at +26.1% and Q4 at +20.4% aren’t too shabby, either.
 

Image Source: Zacks Investment Research

II. Want a More Technical, but Still Well-Informed, Reason to Stay Bullish?

Over the last couple of months, the S&P 500 Growth index has sprung back to life.

As the next index returns chart shows, the S&P 500 Growth index was up only +0.8% to March 31st, 2021. That same index is now up +19.6% YTD.

The sector SPDR for Info Tech is consistent with that growth-buying story. Ticker XLK was up +0.5% to March 31st, 2021. The SPDR Tech index (XLK Quick QuoteXLK - Free Report) is now up +18.8% YTD.

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

Meanwhile, the last line in the above chart shows you global YTD returns.

These have lagged, as the COVID virus wreaks havoc across unvaccinated populations, both inside the USA, and — more obvious to stock returns — outside the USA.

The SPDR S&P World ex-US ETF (VEU Quick QuoteVEU - Free Report) was up just +4.0% after Q1. This non-U.S. index return was up just +7.5% towards the end of Q2.

High vaccination rates are essential. Only this factor restores mobility, and earnings growth. Everywhere.

III. Zacks August Sector/Industry/Company Telescope

The Zacks Rank system showed 4 strong sectors. This was down from 6 last month.

But once again, Info Tech was the clear top sector; strong across all industries.

A deep cyclical sector came out on top – Industrials. The other, Materials, fell a notch to Attractive. Think Steel, Metals Non-ferrous, Building Products-Construction Materials, Construction Building Services, and Metal Fabricating.

2 cyclicals: Energy and Financials stayed Attractive and moved to Market Weight. Coal, Oil E&P, and big Integrated groups remaining strong, given $70 a barrel WTI oil prices.

Consumer Discretionary fell to Market Weight this month. Apparel and Home Furnishing- Appliances stayed strong. Consumer Staples remains at Market Weight, with Agri-business booming with commodity prices.

Health Care stayed Market Weight. Medical Care led again. The typical defensives, Telcos and Utilities, rose to Market Weight.

(1) Info Tech stayed Very Attractive. Computer-Office Equipment, Misc. Tech, Computer-Software Services, and Electronics-Semiconductors (with a global supply shortage), all of those look excellent.

Zacks #2 Rank (BUY) stock: WESCO International (WCC Quick QuoteWCC - Free Report)

(2) Industrials stayed at Very Attractive. Metal Fabricating, Construction-Building Services, and Machinery, were the top industries.

Zacks #2 Rank (BUY) stock: Lincoln Electric (LECO Quick QuoteLECO - Free Report)

(3) Materials moved to Attractive from Very Attractive. Steel and Metals Non-Ferrous were very strong.

Zacks #1 Rank (STRONG BUY) stock: Arch Resources

(4) Energy stayed Attractive. Coal, Oil E&P and Integrated looked great.

(5) Financials moved to Market Weight from Attractive. Insurance, Investment Banking, Banks & Thrifts look good. Lower loss reserves, trading profit, and deals helped here.

(6) Consumer Discretionary fell to Market Weight from Attractive. Apparel and Home Furnishings-Appliance were strong and also show the stimulus check buyer and saver remains in play.

(7) Consumer Staples stayed at Market Weight. Agri-business (commodity price boom) and Food/Drug Retail looked best.

(8) Health Care stayed at Market Weight. Medical Care looked the best.

(9) Communications Services rose to Market Weight from Very Unattractive. Telco Equipment looked the best.

(10) Utilities rose to Market Weight from Very Unattractive. Utilities-Gas Distribution was the best.

IV. Conclusion

I put up three very cyclical stocks in the August summary.

Take a look at the locations of these names:

• Arch Resources is based in St. Louis, MO
• Lincoln Electric is based in Cleveland, OH
• WESCO International is based in Pittsburg, PA

These are well-established firms in the original industrial heartland of the USA.

Interesting, eh?

It is not always the tech stocks that are growing strongly.

Enjoy the August report.

Regards,

John Blank