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Chaos Politics to Slow Growth, or Vice-Versa? Zacks October 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

 

Go ahead!

Be an armchair economist and/or political scientist – open-musing about the affairs of the world can be fun and interesting.

Inspect the following table. It shows four major sovereign players you know all too well.

I will summarize their state of affairs for you.

There is little to crow about -- in 2019 Real GDP Growth -- from so-called “Advanced Countries.”

The growth slide in 2019 is palpable. And it’s a shared event.

Source: Consensus Economics

 

One big idea comes to mind.

Is Chaos Politics affecting, or being affected by, slow Real GDP Growth?

 

  • Do you start off with slow growth in a given Country, and then voters get angry about it?
  • Or do angry voters, with nothing to complain about, get angry anyways, and slow down their economy’s growth?

I gave you two choices on the causality. They tied down possible deep ties: between the role of high-level Federal politics and macro-economic growth rates.

There should be another better choice: “None of the Above.” The current Prime Minister of Japan, Shinzo Abe, is the longest-serving PM in post-war Japan, and the 2nd longest serving PM ever.

But that title was catchy and provocative, wasn’t it!

Let’s get on with Zacks Market Strategy report for October.

The relationship between the U.K. and the U.S.A. is a long, shared one.

Perhaps there is something shared about their current experiments with Chaos Politics and economic and stock market subtleties other than real GDP growth.

Britain Elects was founded in 2013. They are now one of the U.K.’s leading poll aggregators.

Their linear moving average trackers are weighted to reduce volatility and provide the most accurate representation of public opinion on key political questions.

Click the link to their dynamic Westminster House of Commons polling data below. The changes are amazing. The huge shifts can only be fully appreciated by looking at this yourself.

https://britainelects.com/polling/westminster/

Prior to the huge Brexit upheaval of 2019, here are representative poll marks from 2018.

Conservative Party   42%

Labour Party             40%

Liberal Democrat      8%

Brexit Party               0%

Green & Other          10%

Using the service’s poll done on Sept. 25th, 2019 I have these marks:

Conservative Party   33% support

Labour Party             24%

Liberal Democrat      20%

Brexit Party               12%

Green                         4%

 

In short, there used to be 2 U.K. parties validly competing for control of the House of Commons. Now, there are perhaps 4 parties openly competing for control of that nation’s policies.

 

  • There is a leftward political fracture away from Jeremy Corbyn’s Labour Party. It doesn’t get as much press
  • There is also the rise of a Brexit Party, likely support ripped from the Conservative Party.

In sum, there are two issues driving the U.K. apart. One is Brexit. The other is Jeremy Corbyn.

Given shared history, take the U.K. as a reflection of U.S. voting intentions and policy directions!

Want two key U.S. inferences?

 

  • First, there is also a likely barely hidden fracture in the U.S. Republican Party, between those supporting this Presidency, and those that likely don’t.
  • There is also a likely clean fracture in the U.S. Democratic Party. Between those who actively support a leftward shift to Warren and Sanders and those that stay centrist.

This matters to stock owners in two obvious ways:

 

  • Rising political uncertainty from trade wars (and now impeachment) on the right is a barely hidden fracture that holds down business capital spending, and
  • There is growing pessimism about private health care companies, due to another, less discussed, and likely barely hidden leftward fracture.

 

Zacks October Sector/Industry/Company Telescope

In October, there are some surprise sector outperformers.

Entering Q3 earnings season, Zacks Industry Ranks show there is life in growth stock areas of the S&P500. The business cycle has extended life in places, if you look closely.

Look into Info Tech (again) and Consumer Discretionary (again), and keep your positions in Health Care, for the long-term. Short-term, worry about nationalization may not go away.

Two notable S&P500 sectors treading water are Finance and Energy. Rate cuts and slack oil prices are playing neutralizing roles.

The global economy-exposed sector of Industrials is at the back, clearly. This group struggles to gain traction in the face of the multiple trade wars and the brewing political turmoil in DC.

Materials, Telcos and Utilities -- the usual defensives -- were near the bottom of my list.

(1) Health Care stays at the top with a Very Attractive rating. The leaders are Drugs and Medical Products.

Top Zacks #2 Rank (BUY) Stock: Abbvie ((ABBV - Free Report) )

(2) Info Tech rises to Very Attractive. I see Electronics, Misc. Tech. and Computer - Software Services are looking good. Semis are neutral.

Top Zacks #2 Rank (BUY) Stock: Microsoft Corp. ((MSFT - Free Report) )

(3) Consumer Discretionary rises to Very Attractive. I see Publishing, Consumer Electronics, Apparel, and Non-food Retail/Wholesale look good in October.

Top Zacks #2 Rank (BUY) Stock: Genuine Parts ((GPC - Free Report) )

(4) Financials stay a Market Weight. A strong spot is Finance. Consumer spending is likely OK.

(5) Consumer Staples falls two notches to Market Weight from Very Attractive. The best you can do is play Food/Drug Retail and Food.

(6) Energy becomes a Market Weight. Not much jumps out of the pack here.

(7) Utilities stay at Unattractive.

(8) Materials are Unattractive. There are no strong sectors.

(9) Industrials gets a big downgrade to Very Unattractive. There are five Very Unattractive industries: Machinery-Electrical, Railroads & Trucking, Metal Fabricating, Airlines, and Pollution Control. That’s trade war uncertainty for you.

(10) Communication Services is again a Very Unattractive sector.

I hoped you enjoyed this executive summary of my Zacks October market strategy report.

The rest of the report has even more for you.

Such as: the potential for a fresh bubble in U.S. home prices and the state of the U.S. consumer.

 

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