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Market Outlook Into Holiday Season

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Top-Down S&P 500 End-Of-Year 2012 Target

Zacks in-House:  In the Thanksgiving week of November, stocks rallied for five straight sessions, all the way up to 1409.  After getting down to 1360, buyers stepped up en masse, with shares rallying up to 1409. 

We won’t find it surprising that bears will want to test the lower bound 1390-1400 level of the S&P 500 range.  For now, it is providing solid support. However, if we see any weak U.S. economic data or any Fiscal Cliff controversy, we will likely find ourselves below that mark for a while. That is only the short term picture.

Further out, we remain modestly bullish (with a Fiscal Cliff agreement in hand) on a year-end close above the 1470 high.  Always be keenly aware of the primary trend of stocks. That has been firmly bullish since March 2009 and should not be easily tossed aside. Meaning the major U.S. indexes have a long-term upward bias.  To bet against that is likely unwise.


We like the IT sector on valuation.  After a sell-off on broad Q3 IT earnings weakness, we raise the NASDAQ-100 back to an outperform rating on valuations and on an overly pessimistic outlook for fundamentals.  Foreign IT revenue growth from the Asia-Pacific region, and domestic U.S. business spending on IT have good prospects. Europe’s IT budget outlook remains OK.  We would add to a position here, among stronger growing IT companies who have recently met or beaten estimates.  Apple keeps things interesting, and drives the index up or down.

Intertwining Current Fed Macro Outlook with November’s Zacks Industry Ranks

(1) With rising jobs numbers and improved consumer confidence, Consumer Staples and Consumer Discretionary are presently two key sector strengths. The Consumer Finance industry is also strong.

(2) Other High Zacks Ranked goods and services industries are arriving from the building momentum in the Housing Recovery.

A housing related industry that has a very strong Zacks Industry Rank is Home Furnishing- Appliances. Building momentum in U.S. housing also helps the Financials sector.  We see a strong Zacks Industry Rank for Banks &Thrifts and Real Estate.

Interestingly, Building Products and Construction & Engineering ranks took a dive in November. 

(3) Fiscal Cliff tax sunsets that raise U.S. personal income tax rates or sequestration that cuts spending appear to restrain the Industrials sector outlook.  We have seen weakness in capital goods spending. 

Industrials weakness is apparent in poor November Zacks Ranks for Industrial Conglomerates, Metal Fabricating, and Industrial Machinery.

(4) IT weakness is a notable feature of the weak global GDP growth environment.  Growing revenues is difficult for the big global IT businesses.  The shift to smaller screen tablets and mobile is not helping either.

There is no highly rated IT industry.  In an important ongoing signal, November saw the weakest IT Zacks Rank for the Semiconductor industry.

(5) Europe slowdown issues play out with a Market Weight rating to Energy

(6) In addition, the China Sluggishness has notable effects to Materials and Industrial sectors.  The Steel and Metals-Non-Ferrous Industries are still struggling due to these China slowdown effects, along with the Coal industry. Another element to the China slowdown is fresh weakness in Transportation industries, as weak coal shipping and prices play out.


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