Zacks Market Strategy Update - Analyst Blog
October 25 2012 - 11:10AM
Zacks
Here is a brief summary of highlights in October’s Zacks
Market Strategy.
Top-Down S&P 500 End-of-Year 2012 Target
Holding or raising new S&P 500 (SPY) highs
above 1470 is possible, but the more likely scenario we are in is a
range-bound market until a firm resolution of Fiscal Cliff issues.
1390-1400 is our low end. One stop lower, the 200-day moving
average rests at 1375.
In late October, some Zacks experts think equity markets have
reached a phase where you have a battle of the long-term bullish
view vs. a short-term range-bound and even bearish view.
Long-term, one has to believe the primary bullish trend is intact
until proven otherwise. That is especially true with GDP expected
to ratchet up to +1.9% growth in the 3rd quarter versus only +1.3%
in the 2nd quarter.
However, in the short term, this stock market has some gains to
digest, a Presidential election dead-heat, and a Fiscal Cliff
problem looming right behind.
On the Fiscal Cliff, the San Francisco Fed had this to
say:
We assume Congress will let the payroll tax reduction and
extended unemployment benefits expire at year-end, but will agree
to extend the Bush tax cuts and adjust the alternative minimum
tax.
We also expect Congress to limit the spending cuts mandated in the
Budget Control Act of 2011.
In October, six macro trends had notable effects on S&P
500 Sectors and Industries
(1) For Zacks-Ranked goods and services industries, we see the
Housing Recovery in strong earnings surprises tied to Housing.
Housing (ITB) and Construction (MLI), (MTB) -related goods and
services industries that have very strong Zacks Industry
Ranks include Home Furnishing-Appliance, Building
Products, and Construction & Engineering.
Building momentum in U.S. housing also helps the Financials
sector. We see a strong Zacks Industry Ranking for
Banks-Major and Banks &Thrifts.
(2) A stronger U.S. stock market is a new macro theme.
Investment Banking & Brokering saw an upgrade in
October. Strong U.S. stock markets keep the Investment
Fund industry one of the most highly rated.
(3) With modest GDP growth, Consumer Staples is presently
a key strength.
(4) Fiscal Cliff tax sunsets that will raise U.S. personal income
tax rates or sequestration that cuts spending appear to hurt the
Industrials sector. We have seen weakness in capital
goods spending and hiring.
Industrials weakness is apparent in October downgrades to
Industrial Conglomerates, Metal Fabricating and
Commercial Services for Industrials.
(5) 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 signal,
October saw a downgrade to the Semiconductor industry.
(6) China slowdown issues play out with a Market Weight rating to
Energy.
In addition, there are other 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, which saw a notable downgrade in October, as weak coal
shipping and prices play out.
MUELLER INDS (MLI): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis Report
SPDR-SP 500 TR (SPY): ETF Research Reports
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