This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Stocks closed nearly flat on Thursday ahead of the May monthly jobs report on Friday. The Dow is modestly higher, with the Nasdaq Composite, the S&P 500 and Russell 2000 off slightly. The yield on the 10-year Treasury note fell to 4.28%. Gold and oil are trading higher today.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

The technical scorecard for stocks remains bullish, as indices at new all-time highs (and others missing by only a few points) are actually lagging advance/decline lines that have led price to new highs. Historically, when market breadth leads price, it has been bullish when looking out six to 12 months.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Our stock-bond asset-allocation model, which we call the Stock-Bond Barometer, is now indicating that bonds are the asset class offering the most value at the current market juncture. But not by much. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The model's output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks (of 0.16 sigma), with a standard deviation of 0.97. The current valuation level is a 0.14 sigma premium for stocks, which is below the historical average and is not indicating that stocks are dramatically overvalued, even with the S&P 500 having logged all-time highs. Other valuation measures also show reasonable multiples for stocks. The current forward P/E ratio for the S&P 500 is approximately 19.6, which is within the normal range of 13-24 and down from 23 in 2021. The current S&P 500 dividend yield is 32% of the 10-year Treasury yield, compared to the long-run average of 39% and the all-time low of 18% during 1999. Looking ahead, we expect the results from our stock-bond valuation model to tilt toward stocks, as interest rates head lower in 2024 and earnings growth picks up. Based in part on the output from our Stock-Bond Barometer, our current recommended asset-allocation model for moderate accounts is 74% growth assets, including 72% equities and 2% alternatives; and 26% fixed income, with a focus on Core and Opportunistic segments of the bond market.

We don't want to get too excited about the Russell 2000 (IWM $208), but the index is pushing up against key chart resistance once again. IWM is poking its head above prior highs seen in 12/2023, 3/2022, and the January 2022 breakdown level near $207. Since that breakdown over two years ago, IWM has traded in a volatile range, with the bottom down at $160.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Apparently, what goes up can keep going up! Thursday was a monumental day for AI, the Technology sector, Nvidia, and the entire semiconductor space. NVDA's blowout quarter, again, sent the shares further into space, rising 111 points or 16.4% to another all-time high of $785. At the beginning of 2024, the stock was under $500, and in October 2022, it was trading down near $100. NVDA lifted the Nasdaq and the Nasdaq 100 (NDX) by 3% and the S&P 500 by 2.1%. It was the largest daily gain for the NDX and Nasdaq since February 2023 and the largest for the SPX since January 2023.

Stocks were mixed on Thursday intraday as investors digested new economic data. U.S. retail & food services sales fell 0.8% in January from December, but were up 0.6% from a year ago. That was below estimates for a 0.2% decline in sales. Excluding automobiles, sales were down 0.6%, and excluding gas, down 0.8%. Initial jobless claims for the week were 212,000, down from the previous week's revised 220,000. Ongoing unemployment increased 30,000 to 1,895,000, which pushed the insured unemployment rate up to 1.3%. The Dow rose 0.5%, the S&P 500 was up 0.02%, while the Nasdaq lost 0.2%. Crude oil traded just above $78 per barrel and gold was up $6 to $2010 per ounce.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Wednesday was the first really tough day for stocks in 2024, as shares of some Technology companies were creamed after earnings were reported. Then, the Federal Reserve piled on and investors threw a temper tantrum at the thought the Fed isn't going to cut rates at the March 20 meeting. A month ago, the market saw a high probability of a March cut, but recently that belief (hope) has dissipated. Anecdotally, it was hard to find anyone (there were a few) that thought the Fed would start its rate-cutting campaign early this year.

Major indices made nice intraday recoveries on Tuesday -- but for a second day in a row, market breadth disappointed. In early trading, the S&P 500 was down about 30 points, but finished down only seven. The Nasdaq and Nasdaq 100 were off almost 1% early on, but closed with minor gains. Small- and mid-cap indices were a bit soft, with the Russell 2000 off 0.9% and the S&P 400 down 0.7%. NYSE breadth (advances-declines) was -1,535 while NYSE up issues/total issues was weak at 28% and NYSE up volume/total volume was only 25%.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Our stock/bond asset-allocation model, which we call the Stock-Bond Barometer, has reversed conclusions in the past month and now indicates that stocks are the asset class offering the most value at the current market juncture. In large part, the changed reading reflects the substantial move lower in interest rates. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The model output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks of 0.16 sigma, with a standard deviation of 0.98. The current valuation level is a 0.12 sigma discount for stocks, which is now below fair value and down sharply from a 0.85 sigma premium at the end of 3Q. Other valuation measures also show reasonable multiples for stocks. The current forward P/E ratio for the S&P 500 is approximately 18, which is within the normal range of 10-21 and down from 23 at the end of 2021. And the current S&P 500 dividend yield of 1.5%, while below the historical average of 2.9%, is up from an ultralow 1.2% (also in 2021). Looking ahead, we expect the results from our valuation model to continue to improve, as interest rates decline in 2024 and EPS growth picks up. Based in part on the output from our Stock-Bond Barometer, our current recommended asset-allocation model for moderate accounts is 70% growth assets, including 68% equities and 2% alternatives; and 30% fixed-income, with a focus on core and opportunistic segments of the bond market. On duration, we recommend focusing on the short end of the curve.

Stocks were mixed on Tuesday morning following new employment and service sector data. In its monthly JOLTS survey, the Labor Department said that job openings fell to 8.73 million on the last day of October, down from 9.35 million a month earlier and below the Reuters consensus forecast of 9.3 million. Services data was stronger than expected. The Institute for Supply Management said that its non-manufacturing PMI rose to 52.7 in November from 51.8 in October and also topped the consensus forecast of 52.0. CVS shares rose 4% after the company issued strong 2024 sales guidance and raised its dividend by 10%. The Dow fell 0.3%, the S&P rose 0.1%, and the Nasdaq rose 0.6%. Crude oil rose to $73.50 per barrel, while gold fell $12 to trade near $2031 per ounce.

Equities have sent confusing and contradictory signals throughout a back-and-forth 2023. Since setting year-highs at the end of July, the S&P 500 has mainly moved lower. During various attempted recovery spurts, the one thing that has been consistently lacking has been breadth. A handful of AI superhero stocks cannot carry the market, and narrow recovery tries are doomed to fail, in our view.

Third Quarter 2023

Monday Tee Up: Will CPI Have a Two- or a Three-Handle?

We have raised our intermediate-term technical outlook to neutral. The Teflon stock market continues to crawl higher in the face of bearish daily momentum divergences and, in some cases, extreme bullish sentiment. This is typical action in the early stages of a bull market. However, it took 164 days for the S&P 500 (SPX) to gain 20%, far longer than almost every other bull market in the past -- so we thought we were dealing with a market that might remain range bound. That hasn't been the case, as the major indices have dealt extremely well with some key areas of chart resistance as well as various important Fibonacci retracement levels.

Our bond/stock asset allocation model indicates that bonds are the asset class currently offering the most value, as interest rates have risen and stocks have recovered some of the ground they lost last year. But stocks are not yet seriously overvalued. Our model takes into account current levels and forecasts of short- and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The model output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is a 0.70 sigma premium for stocks, which is inside the normal range but up from the 0.50 sigma premium at the beginning of the year. Other measures also show reasonable valuations for stocks. The current forward P/E ratio for the S&P 500 is 17, which is within the normal range of 10-21 and down from 22 a year ago. And the current S&P 500 dividend yield of 1.6%, while below the historical average of 2.9%, is up from an ultralow 1.2% as recently as 2021. Based on the current valuation levels, as well as our interest rate and earnings forecasts, we have called for a recovery in stock prices in 2023 from bear-market lows and are now boosting our year-end S&P 500 target to 4,600. Our current recommended Asset Allocation Model for Moderate accounts is 67% Growth assets, including 65% equities and 2% alternatives; and 33% Fixed Income, with a focus on opportunistic segments of the bond market.

We recently read two statements that pretty much say it all. The first was this. 'Positive earnings surprises of this magnitude are rarely seen when you enter a recession.' That compared to this. 'Forecasted probability of recession at levels only seen during recessions.' Yes, these are confusing times.

It's as if the Federal Reserve is playing the "strongman game" at a carnival. Every time the Fed chairman swings the hammer, the puck goes higher -- but someone keeps moving the bell even higher. According to the CME FedWatch Tool, fed funds are now projected to go from a target range of 4.75%-5.0% to 5.5%-5.75% by the June meeting, and there is a 31% probability the funds rate goes to 5.75%-6.0% by July.

Our bond/stock asset-allocation model is indicating that bonds are close to fair value, as rising yields have made fixed-income investments relatively more attractive over the course of the past year. Stocks remain overvalued, though valuations have improved in recent months. Our model takes into account current levels and forecasts of short-term and long-term government and corporate fixed-income yields, inflation, stock prices, GDP, and corporate earnings, among other factors. The model output is expressed in terms of standard deviations to the mean, or sigma. The mean reading from the model, going back to 1960, is a modest premium for stocks, of 0.15 sigma, with a standard deviation of 1.0. The current valuation level is a 0.86 sigma premium for stocks, which is inside the normal range. T-bond yields are around 3.9%, by comparison, coming closer to our fair value target yield of 4.8%. Generally, the model has done a good job of highlighting asset-class value, such as stocks in the late 1970s, bonds prior to the "dot-com" crash of 2001, and stocks once again at the depths of the financial crisis in 2009. As our chart shows, markets can manage with premiums and discounts for extended periods of time, as interest rates and stock prices fluctuate daily. Based on the current model input levels, we are expecting a recovery in stock prices from bear-market lows in 2023 and have established a year-end S&P 500 target of 4,300. Our current recommended asset allocation model for moderate accounts is 67% growth assets, including 63% equities and 4% alternatives; and 33% fixed income, with a focus on opportunistic segments of the bond market.

Insider-sentiment data, updated weekly by Vickers Stock Research, has been increasingly bearish for the past three weeks. And this week, the data from Vickers remains very worrisome.

Insider-sentiment data, updated weekly by Vickers Stock Research, has been increasingly bearish for the past three weeks. And this week, the data from Vickers remains very worrisome.

Stocks fell on Wednesday morning following more 4Q earnings reports and new retail sales data. The Commerce Department reported that U.S. retail sales rose 3.0% from the prior month in January, up from a 1.1% decline in December and above the Bloomberg consensus forecast of 2.0% growth. The results pointed to strength in the consumer economy, but also raised prospects for continued aggressive Fed rate hikes. The Dow fell 0.5%, the S&P 0.5%, and the Nasdaq 0.3%. Crude oil fell more than 1% to $78 per barrel, while gold fell $22 to $1843 per ounce.

October, as it has been many times in the past, was a wild month -- and at least a short-term bear killer. The month started out great and then the major indices fell off a small cliff and declined to new bear-market lows. But stocks had an amazing bullish reversal on October 13 and have been grinding nicely higher ever since. While it's a start, we are a long way from putting the bear fully into hibernation, despite the calendar's turn toward colder weather.

Stocks continued to drop on Friday morning following an earnings warning from FedEx that investors saw as a confirmation of broad economic weakness. The shipping company said that it would report much weaker than expected fiscal 1Q results and withdrew its full-year earnings forecast. FDX shares fell 23%. The shares of UPS and other competitors also fell sharply. The Dow fell 1.0%, the S&P 1.3%, and the Nasdaq 1.6%. Crude oil rose more than 1% to $86 per barrel, while gold traded near $1684 per ounce.

Since late June, Argus Research has launched coverage of five new companies. Although we initiated coverage of three of these companies with near-term HOLD ratings, they are all substantial players within their sectors and we want to keep an eye on them. The additions brought our fundamental Universe of Coverage to more than 500 leading U.S. and international companies. We cover stocks in all of the S&P 500 sectors - from Technology to Utilities and from Energy to Healthcare. Generally, we follow the Top 200 most-widely-held stocks, sourced from our sister company Vickers Stock Research (which collects institutional ownership data from the U.S. Securities and Exchange Commission). After that, we identify what we believe are the next 300 leading U.S. and international companies to round out our list. Our Universe of Coverage is dynamic and growing. We continually add stocks and often get ideas from our clients. Here are our most recent additions.

The volume of weekly insider transactions remains very low, which is to be expected as earnings season is in full swing and executives, directors, and beneficial owners are broadly prohibited from trading. But as was the case last week, the current data from Vickers Stock Research provides a clear picture of insider sentiment that remains balanced and seemingly optimistic.

In this edition, mainstream oil companies face a dilemma, the travel industry is showing cabin fever, pumped-up gas prices, and Unilever, Capri, and Okta.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.