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An Update on "Fair Value": Zacks FEB Market Strategy

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

I. The Latest on S&P 500 Earnings Data

YTD to Jan 31st, 2023 the narrow DJIA index was up +1.72%, the broader S&P 500 index was up +4.64%, and the tech-heavy Nasdaq was up +8.86%.

Across 2022, the S&P 500 loss was -19.4%. The Nasdaq 100 was down -34.8%.

All three prior years recorded well above average annual S&P 500 returns.

  • In 2021, the annual S&P 500 share gain was +26.9%
  • In 2020, the gain was +18.4%
  • In 2019, the gain was +28.9%

The historical expected annual return (using data from 1930 to 2021)? This is +7.9%.  

2023 can continue to bring a durable index share recovery. It all depends on recession narratives.

Next, Zacks’ update on 2023 & 2024 S&P 500 EPS and “fair value” index calculations.

Zacks Investment Research
Image Source: Zacks Investment Research

II. Zacks February Sector/Industry/Company Telescope

The message from the latest late JAN 2023 Zacks Industry Ranks: Consumer Staples firmly leads at Very Attractive. Food price inflation is an assist.

Next in line, the Industrials, Utilities and the Materials sectors get notable upgrades.

Energy and Financials stay at Market Weights. Domestic Drillers, the Major Banks and the Insurers look great. That is a reassuring domestic mix.

Health Care rose to a Market Weight sector. Communication Services rose to Market Weight.

Info Tech is at the back at Unattractive. The hangover from excess COVID spending.

(1) Consumer Staples stays Very Attractive. Soaps & Cosmetics, Beverages & Food are best.

Top Zacks #1 Rank (STRONG BUY) Stock: Swatch Group AG (SWGAY - Free Report)

(2) Industrials rose to Very Attractive from Market Weigh. Metal Fabricating, Machinery, Industrial Products/Services, and Machinery look the best.

Top Zacks #1 Rank (STRONG BUY) Stock: Reliance Steel & Aluminum Co (RS - Free Report)

(3) Utilities
rise to Very Attractive from Unattractive. Utilities-Telephone and Utilities Gas Distribution are clear leaders. It is the heart of winter.

Top Zacks #1 Rank (STRONG BUY) Stock: National Grid Transco (NGG - Free Report)

(4) Materials rose to Attractive from Unattractive. Metals Non-Ferrous and Steel look best.

(5) Energy stayed Market Weight. Domestic Drillers and Pipelines looked the best.

(6) Financials stayed Market Weight. Major Banks and are the top niches to mine.

(7) Consumer Discretionary stayed Market Weight. Apparel is the very best, again.

(8) Health Care rose to Market Weight to Unattractive. Medical Products and Drugs OK.

(9) Communications Services rises to Market Weight from Very Unattractive.

(10) Info Tech stays Unattractive. Computer-Software Services and Misc. Tech look OK.

III. Conclusion

In 2022, headwinds weighed on lofty large-cap U.S. stock index valuations.

Those major headwinds were:

  • Commodity and oil price effects produced by Russia’s war & China COVID
  • A gradual Fed “QE” exit, and
  • A Fed Funds rate hike approach to a peak 5.0% to 5.25% long-term, risk-free, U.S. “neutral” rate

These headwinds likely stay in play in the first half of 2023.

China’s reopening is a big positive shift for commodity prices, now.

2023 stock traders can look over the headwinds.

There is a nice S&P 500 index EPS recovery showing up in the latest 2024 data.

Enjoy the rest of the FEB 2023 Zacks Market Strategy report.

Warm Regards,

John Blank
Zacks Chief Equity Strategist and Economist

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Reliance Steel & Aluminum Co. (RS) - free report >>

National Grid Transco, PLC (NGG) - free report >>

Swatch Group AG (SWGAY) - free report >>

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