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At the Kansas City Fed Jackson Hole Conference, held virtually on August 27th, Fed Chair Jerome Powell offered the following published comment—
“We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance.
My view is that the "substantial further progress" test has been met for inflation. There has also been clear progress toward maximum employment.
At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.
The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant.
We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.”
Federal Reserve Assets (Millions of U.S. Dollars)
Image Source: Federal Reserve Bank of St Louis
As the above FRED chart shows, $4T in Fed assets jumped to $7T in March 2020. A grinding addition of $120B a month has taken the Fed balance sheet over $8T now.
- On March 15th, 2020, the S&P500 traded at 2,304. On Sept. 2nd it is at 4,524 (+96%).
- On March 4th, 2020, Fed assets were $4.24T. On August 25th, they were $8.3T (+96%).
It is not magical that those two % increases matched up. Fed liquidity has driven markets higher. A 10-yr U.S. Treasury bond rate of 1.3% this month is just one very visible result. Steadily rising large-cap indices, walking a virtual rope, are another.
What likely happens after a formal bond buying taper announcement? Too simplistically, some imagine an immediate sideways stall in the amount of Fed asset buying. Under a simplistic 1-for-1 scenario, that would also stall stock markets.
However, before we get there, the Fed will undertake a taper of its monthly mortgage-backed and U.S. Treasury buying. Not a stall. Large-cap U.S. stocks should still rise, under ongoing liquidity pressure.
Less pressure. Yes. But steadily decreasing pressure, month after month, into early 2022, is still upward pressure.
Zacks September Sector/Industry/Company Telescope
The early fall Zacks Rank system showed 5 strong sectors. This was similar to 6 in July.
Again, Info Tech was the clear top sector; strong across all industries.
Another cyclical sector also stayed on top – Industrials. The other, Materials, stayed at Attractive. Think Steel, Machinery-Electrical, Machinery, and Metal Fabricating.
2 cyclicals: Energy and Financials stayed put at Attractive. Energy-Alternates, Oil E&P, and big Integrated groups remain strong, at $67 a barrel WTI oil prices.
Consumer Discretionary stayed at Market Weight this month. Apparel and Home Furnishing- Appliances stayed strong. Consumer Staples stayed at Market Weight too, with Agri-business booming with commodity prices.
Health Care stayed Market Weight. Medical Care led again. The typical defensives, Telcos and Utilities, stayed at Market Weight.
(1) Info Tech stayed at Very Attractive. Computer-Office Equipment, Semis (with a global supply shortage), and Electronics all of those look excellent.
Zacks #1 Rank (STRONG BUY) Stock: Canon
(2) Industrials stayed at Very Attractive. Metal Fabricating, Machinery-Electrical, Machinery, Conglomerates, and Railroads were the top industries.
(4) Energy stayed at Attractive. Energy-Alternates, Oil E&P, and Integrated looked great.
(5) Financials moved to Attractive from Market Weight. Insurance, Investment Banking, Banks & Thrifts look good. Lower loss reserves, trading profit, and deals helped here.
(6) Consumer Discretionary stayed at Market Weight. 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 stayed at Market Weight. Telco Equipment looked the best.
(10) Utilities stayed at Market Weight. Utilities-Gas Distribution was the best.
Conclusion
I finish up this September 2021 market strategy summary with company descriptions -- of the three hot Zacks Rank stocks I highlighted this month.
I added business writeups to show you: Manufacturers are represented in all three spots, and it appears they are the technologically innovative ones, in their respective niches.
1. Canon products include full-color as well as black and white copiers; color laser printers; facsimile machines; micrographics and optical disk filing systems; word processors, typewriters and calculators; camcorders, and lenses; semiconductor, broadcast and optical equipment; and other specialized industrial products.
2. Helios Technologies Inc., formerly known as Sun Hydraulics Corporation, is based in Sarasota, Florida. This company is an industrial technology company. It develops and manufactures hydraulic and electronic control solutions.
3. Valmont Industries is headquartered in Omaha, Nebraska. This company is primarily engaged in the production of fabricated metal products, metal and concrete pole and tower structures and mechanized irrigation systems in the United States and abroad.
Top Zacks #1 Ranked manufacturers, across the board?
That is consistent with strong ISM manufacturing Purchasing Manager Index (PMI) readings we are seeing, month-after-month.
Regards,
John Blank
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The Main Driver of U.S. Markets: Zacks SEPT Market Strategy
The following is an excerpt from Zacks Chief Strategist John Blank’s full Sep Market Strategy report To access the full PDF, click here.
Introduction
At the Kansas City Fed Jackson Hole Conference, held virtually on August 27th, Fed Chair Jerome Powell offered the following published comment—
“We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance.
My view is that the "substantial further progress" test has been met for inflation. There has also been clear progress toward maximum employment.
At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.
The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant.
We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.”
Federal Reserve Assets (Millions of U.S. Dollars)
Image Source: Federal Reserve Bank of St Louis
As the above FRED chart shows, $4T in Fed assets jumped to $7T in March 2020. A grinding addition of $120B a month has taken the Fed balance sheet over $8T now.
It is not magical that those two % increases matched up. Fed liquidity has driven markets higher. A 10-yr U.S. Treasury bond rate of 1.3% this month is just one very visible result. Steadily rising large-cap indices, walking a virtual rope, are another.
What likely happens after a formal bond buying taper announcement? Too simplistically, some imagine an immediate sideways stall in the amount of Fed asset buying. Under a simplistic 1-for-1 scenario, that would also stall stock markets.
However, before we get there, the Fed will undertake a taper of its monthly mortgage-backed and U.S. Treasury buying. Not a stall. Large-cap U.S. stocks should still rise, under ongoing liquidity pressure.
Less pressure. Yes. But steadily decreasing pressure, month after month, into early 2022, is still upward pressure.
Zacks September Sector/Industry/Company Telescope
The early fall Zacks Rank system showed 5 strong sectors. This was similar to 6 in July.
Again, Info Tech was the clear top sector; strong across all industries.
Another cyclical sector also stayed on top – Industrials. The other, Materials, stayed at Attractive. Think Steel, Machinery-Electrical, Machinery, and Metal Fabricating.
2 cyclicals: Energy and Financials stayed put at Attractive. Energy-Alternates, Oil E&P, and big Integrated groups remain strong, at $67 a barrel WTI oil prices.
Consumer Discretionary stayed at Market Weight this month. Apparel and Home Furnishing- Appliances stayed strong. Consumer Staples stayed at Market Weight too, with Agri-business booming with commodity prices.
Health Care stayed Market Weight. Medical Care led again. The typical defensives, Telcos and Utilities, stayed at Market Weight.
(1) Info Tech stayed at Very Attractive. Computer-Office Equipment, Semis (with a global supply shortage), and Electronics all of those look excellent.
Zacks #1 Rank (STRONG BUY) Stock: Canon
(2) Industrials stayed at Very Attractive. Metal Fabricating, Machinery-Electrical, Machinery, Conglomerates, and Railroads were the top industries.
Zacks #1 Rank (STRONG BUY) Stock: Helios Technologies (HLIO - Free Report)
(3) Materials stayed at Attractive. Steel remained very strong. Metals Non-ferrous fell.
Zacks #1 Rank (STRONG BUY) Stock: Valmont Industries (VMI - Free Report)
(4) Energy stayed at Attractive. Energy-Alternates, Oil E&P, and Integrated looked great.
(5) Financials moved to Attractive from Market Weight. Insurance, Investment Banking, Banks & Thrifts look good. Lower loss reserves, trading profit, and deals helped here.
(6) Consumer Discretionary stayed at Market Weight. 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 stayed at Market Weight. Telco Equipment looked the best.
(10) Utilities stayed at Market Weight. Utilities-Gas Distribution was the best.
Conclusion
I finish up this September 2021 market strategy summary with company descriptions -- of the three hot Zacks Rank stocks I highlighted this month.
I added business writeups to show you: Manufacturers are represented in all three spots, and it appears they are the technologically innovative ones, in their respective niches.
1. Canon products include full-color as well as black and white copiers; color laser printers; facsimile machines; micrographics and optical disk filing systems; word processors, typewriters and calculators; camcorders, and lenses; semiconductor, broadcast and optical equipment; and other specialized industrial products.
2. Helios Technologies Inc., formerly known as Sun Hydraulics Corporation, is based in Sarasota, Florida. This company is an industrial technology company. It develops and manufactures hydraulic and electronic control solutions.
3. Valmont Industries is headquartered in Omaha, Nebraska. This company is primarily engaged in the production of fabricated metal products, metal and concrete pole and tower structures and mechanized irrigation systems in the United States and abroad.
Top Zacks #1 Ranked manufacturers, across the board?
That is consistent with strong ISM manufacturing Purchasing Manager Index (PMI) readings we are seeing, month-after-month.
Regards,
John Blank