Sectors are Rotating: Our Monthly Survey of the Economy, Interest Rates, and Stocks The stock market experienced a mid- to late-July selloff and a very rocky start to August. Yet the S&P 500 ended up rising for both months, extending its latest winning streak to four months. The stock-selling spasms that erupted in both months were triggered by concerns that the Fed had waited too long to cut rates and, due to the lags in rate changes impacting the economy, the U.S. was headed for recession. The markets then calmed, following reassuring commentary from Fed officials and solid earnings and GDP data. The market is now in September, which since 1980 has been the worst market month with an average 1.1% decline. Election-year Septembers can be particularly volatile, though on balance they are better than all Septembers since 1980. The Economy, Interest Rates, and Earnings The broadest measure of the U.S. economy, Gross Domestic Product, appeared to show a healthy and even accelerating economy as of mid-year. The preliminary (second of three) report of second-quarter GDP exceeded the advance report and was meaningfully above first-quarter levels, and in particular indicated a recovery in consumer spending. A review of the second quarter does appear to indicate a normally growing economy as of mid-year. The preliminary report of second-quarter GDP showed growth of 3.0%, more than double the 1.4% growth rate reported for 1Q24. Ahead of the advance report release, the consensus call was for low 2% growth in the first quarter. The increase in second-quarter 2024 GDP primarily reflected increases in personal consumption expenditures, private inventory investment, non-residential fixed investment, and total government spending. These gains were partly offset by a decline in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased and exceeded exports. Personal consumption expenditures for 2Q24 increased 2.9%, up from 1.5% for 1Q24 and 2.2% for all of 2023. Spending on goods increased 4.9% in 2Q24, after falling 2.3% in 1Q24. Durable goods spending rebounded by a sharp 4.7% in 2Q24, after declining 4.5% in the prior quarter. Durable goods spending was up 4.2 % for all of 2023. Non-durable goods spending also bounced back, rising 2.0% for 2Q24 after declining 1.1% for 1Q24. The decline in annual inflation growth has mainly been concentrated in goods, while services inflation remains stubbornly elevated. Consumers may now be willing to buy goods at stable or even lower prices. Consumer spending on services grew 2.9% in 2Q24 and was the one component of PCE that declined from the first quarter. Consumer spending on services grew 3.3% in 1Q24. Some of the growth in consumer services spending is being driven by rent equivalent and insurance, two costs consumers cannot control and many cannot avoid. The very weak trend in 1Q24 consumer spending appeared to provide further evidence of the consumer under siege from multiple years of inflation. The bounce-back in second-quarter consumer spending could suggest that consumers have adapted to higher prices, or it could turn out to be a head-fake. We expect PCE within the GDP accounts to continue to send conflicting signals, with overall goods spending more volatile than services. Non-residential fixed investment, the proxy for corporate capital spending, rose at a 4.6% annual rate in 2Q24, after rising 4.4% in 1Q24. This category was also healthy in 2023, rising 4.5%. Spending on equipment increased in low-double-digit percentages, while spending on intellectual property was up in low-single digits. Some of the growth in capital spending in 2023 and in the 2024 first half has been the result of corporations facing higher costs for everything. PCE and non-residential fixed investment represent about four-fifths of gross domestic product in any quarter. In 2Q24, consumer spending added 1.95 percentage point to GDP, while non-residential fixed investment added 0.6 percentage point. Residential fixed investment, which surprised with 16% growth in 1Q24, dropped back into negative territory, declining 2.0% in 2Q24. The export-import balance heavily favored imports in 2Q24, as it did in 1Q24. Exports grew 1.6% in 2Q24, while imports were up 7.0%. Given the higher dollar value of imports, the net exports-imports balance subtracted about three-quarters of a percentage point (77 basis points) from overall 2Q24 GDP growth. We expect this category to remain volatile quarter over quarter. Another volatile character has been the change in private inventories. This category added 78 basis points (bps) to GDP in 2Q24, after subtracting 42 bps from 1Q24 GDP growth. Disruptions in the distribution channel began with the trade and tariff wars of 2017-2020 and worsened with the supply-chain crisis in 2021-2022 and the supply-chain glut in 2023. We look for private inventories to maintain the excessive volatility in this series that has prevailed since the pandemic. Overall government spending was up 3.1% and added just under one-half percentage point to GDP growth. Federal spending increased 3.3% in 2Q24 after declining in 1Q24, while state and local government spending grew 2.3%. The price index for gross domestic purchases increased 2.4% in 2Q24, compared with an increase of 3.1% in 1Q24. The PCE price index advanced 2.5%, down from 3.4% in 1Q24. The core PCE index also came down from 1Q24. Higher GDP with lower price increases in 2Q24 marked a real improvement from 1Q24. Much of investors' concerns can be found outside the GDP accounts. U.S. economic indicators generally suggest deceleration, although growth continues at a subdued level. The consumer economy continues to send mixed signals, with jobs and wages still growing - but at a meaningfully slower pace. The U.S. economy shocked with 114,000 new jobs in July, well below the consensus of 175,000. July was also well below the 12-month average of 215,000. The unemployment rate rose to 4.3% for July 2024 from 4.1% for June, and was up sharply from 3.5% a year earlier in July 2023. Average hourly earnings increased eight cents month-to-month for July and were 3.6% higher year-over-year. July annual wage growth represented a return to sub-4% growth; annual wage has mainly exceeded 4% since June 2021. Annual wage growth continues to run above inflation, but the premium has narrowed. In August, the Bureau of Labor Statistics within the Department of Labor reported revised data showing 818,000 fewer nonfarm payroll jobs than initially reported were created for the trailing one-year period. From April 2023 through March 2024, the economy added about 2.1 million new jobs - 30% fewer than the initially reported 2.9 million. Most industries reported downward revisions, with notably lower levels in information services, professional & business services, and mining & logging. Transportation & warehousing was the only category to be revised higher, indicative of our increasing reliance on e-commerce. The consumer seems slightly more optimistic or perhaps reconciled to higher prices. After three straight tepid months in April through June, retail sales for July surged by 1.0% from June levels. On a year-over-year basis, retail sales were up 2.7% in July, compared with 2.3% annual growth reported for June 2024. Annual growth was particularly strong for electronics & appliances, motor vehicle parts & gasoline, and health and personal care items. Purchasing managers across the industrial economy remain cautious. ISM's manufacturing PMI came in at 46.8% for July 2024, down from 48.5% in June. The manufacturing PMI remained in contraction territory - below 50 - for the fourth straight month and for the twentieth time in the past 21 months. ISM's services PMI slipped into contraction territory in June, falling to 48.8%. ISM's service PMI rebounded to 51.4% in July, however, and has been in positive territory in six of the seven months reported for 2024 to date. The services economy is significantly larger than the manufacturing economy, and continued strength in this category is vital to ongoing economic growth. Industrial production showed surprising weakness in July, declining 0.6% month over month after rising a revised 0.3% in June. July capacity utilization dipped to 77.8%, putting it nearly two percentage points below the long-run average. Straddling the commercial and consumer economies is housing. Consistent with the negative residential fixed investment data from 2Q24 GDP, the housing economy continues to struggle. Based on SAAR (seasonally adjusted annual rate), both new and existing home sales are running at about 60% of peak pandemic levels. At the same time, pent-up Millennial demand for housing continues to intensify. Aging Baby Boomers have been locked into too-large homes by low mortgage rate. The plunge in interest rates accompanying the summer stock selloff could have a silver lining if it unlocks the housing market. Following surprising second-quarter strength, Director of Economic Research Chris Graja, CFA, raised the Argus forecast for 2024 GDP growth to 1.9%, from a prior 1.7%. Chris expects quarterly GDP to growth in the sub-2% range in the third and fourth quarters. We expect GDP growth in the 2% range in 2025, with the economy strengthening into the second half as lower rates stimulate consumer and business activity. Given the overhang of high prices and interest rates, and with the consumer weary from years of inflation, our GDP growth forecasts for 2024 and 2025 are likely to remain volatile. We also continue to believe the U.S. economy can avoid recession in 2024 and 2025, as it did in 2023 and 2022. The U.S. central bank started its rate-hiking campaign in March 2022 well behind the inflation curve. Sixteen months and more than five percentage points later, the Fed halted in July 2023. At its mid-July 2024 FOMC meeting, the Fed voted to hold the fed funds rate steady at the 5.25%-5.50% tendency, as it had done for eight straight meetings since July 2023. The market mood has certainly changed, however. Weariness with inflation has given way to worries about recession. At the beginning of the central-banking rate-hiking campaign, investors feared that the Fed was 'behind the curve' in its fight against inflation. With inflation down to within a point of the Fed's 2% target, that now seems like the last war. Investors once again fear that the Fed is 'behind the curve,' this time in its need to cut rates before the U.S. tips into recession. In July, the FOMC statement pushed back against recession fears, noting that economic activity 'continues to expand at a solid pace.' Although employment growth has moderated, the statement continued, unemployment has moved up but remains low. Language in the June FOMC report noted 'modest further progress toward the Committee's 2% inflation objective.' In July, the Fed echoed its 'further progress' commentary. In August, Fed Chair Jay Powell used the forum of this year's Jackson Hole Economic Symposium to allay recession fears. In his calm and reassuring speech, the Fed Chair stated that the 'time has come' to cut interest rates in response to cooler inflation and slowing economic growth. Inflation has 'declined significantly,' he added, and the labor market 'is no longer overheated.' Perhaps most notably, Fed Chair Powell acknowledged that 'the balance of risks to our two mandates has changed.' Inflation is receding, and the mandate to return inflation to 2% has nearly been met. At the same time, the economy has softened from recent peaks, and the mandate to maintain maximum sustainable employment is now at risk. Reversals in Fed policy, and particularly the move from raising rates to cutting rates, inevitably come at a fraught time for the economy. In those periods, the economy is seen as vulnerable to too little stimulus, while inflation is at risk of returning from too much stimulus. Mr. Powell's calm tone in addressing the dual mandate, in our view, was a necessary lubricant in the shift from restrictive to accommodative monetary policy. The Fed's preferred inflation gauge, the core PCE price index, rose 0.2% in July and was up 2.6% year over year. The monthly number matched the June and May levels. The annual change declined from the June reading, which had been the lowest annual rate of change in the core PCE price index since March 2021. The core PCE data confirmed inflation inputs from the July CPI report issued in August. The all-items CPI rose 0.2% month over month in July, after declining 0.1% in June. On an annual basis, the July all-items CPI was up 2.9%, down from June's 3.0% annual rate of change. Core CPI was up 0.2%, and the annual change in core CPI was 3.22%, also down one tick from June. Goods inflation has come off markedly, while inflation in services is still stubbornly high. The index for shelter rose 0.4% month-over-month in July and accounted for nearly 90% of the increase in all-items CPI. The 10-year Treasury yield was 3.91% as of the end of August, level with 3.89% at the end of July and down from the 4.7% level as recently as the end of April. The two-year Treasury yield was 3.91% as of the end of August, down from 4.16% as of end of July and the peak level of 4.96% as of end of April. On 8/27/24, the two-year and 10-year Treasury yields were both 3.83%. This marked the first time the two-year yield was not above the 10-year yield since April 2022. These two yields also ended August at the same level. Argus expects long yields to move relatively higher from current levels and short-term yields to move relatively lower. But we are not ready to call for a decisive end to twos-10s inversion. Given recession fears and potential volatility in inflation data, two-year and 10-year yields may remain in close proximity as late as the first quarter of 2025. We also see the potential for twos-10s inversion to end during 2024. Argus Fixed Income Strategist Kevin Heal is now modeling three quarter-point rate cuts in 2024: one each at the September, November, and December FOMC meetings. Note that the November FOMC meeting occurs post-election. Each cut is expected to be 25 basis points, bringing the Fed's central tendency to the 4.50%-4.75% level by year-end. We regard the rate-cut outlook as dynamic, to say the least. As shown in the CME FedWatch tool, the probability of a 25 bps cut at the September FOMC meeting is about 66%; the probability of a 50 bps cut at the September meeting is now about 34%. As of the November meeting, the CME FedWatch tool indicated a 42% probability of cumulative 50 bps reduction in fed funds and 47% probability of cumulative 75 bps reduction. And by the December meeting, the CME FedWatch tool indicated a 44% probability of cumulative 75 bps reduction in fed funds and 27% probability of cumulative 100 bps reduction. Despite the increasing likelihood of multiple rate cuts in the final four months of 2024, the Fed is expected to proceed cautiously next year, according to Kevin Heal, with a measured pace of additional rate cuts in 2025. First-quarter 2024 earnings outpaced expectations, but were below the double-digit growth that prevailed in the pandemic and immediate post-pandemic era. Second-quarter 2024 earnings from continuing operations are up in high-single-digit to low-double-digit percentages, according to our vendor survey. Along with GDP growth, second-quarter earnings represent a bulwark against growing recession concerns. With over 75% of S&P 500 component companies having reported results, second-quarter 2024 earnings from continuing operations were up 11.5% compared with 2Q23 EPS, according to FactSet, and up 12.9% according to Refinitiv. According to Bloomberg, 2Q24 earnings w up 12.5% on a share-weighted basis and 16.5% on a market-cap-weighted basis. This premium of market-cap-weighted to share-weighted EPS growth is reflective of the earnings outperformance of large-capitalization companies compared with small- and mid-caps. An unusually high percentage of companies (25%-plus) have reported negative earnings for 2Q24. The average EPS decline for the negative-earnings group, which is heavily weighted in Energy, Materials, and Real Estate, is 16%. For the 75% of companies reporting positive EPS, average earnings growth is a robust 22%. A key reason investors are optimistic about second-half 2024 earnings growth is that the negative drag from Energy, Materials, and Real Estate is expected to diminish in 3Q24 and potentially reverse in 4Q24. About 78% of companies have reported positive EPS surprises in 2Q24, compared with 14% of companies reporting negative surprises. These percentages are above the 10-year average of 74%. For these companies, the median beat against consensus estimates is 5% (FactSet has it at 4.5%). For the first time in several quarters, the median beat against expectations is below the 10-year average of 6.8%. At the sector level, the strongest earnings growth is coming from Financial, Information Technology, and Utilities - all up in mid-teen percentages year over year. Other sectors reporting positive EPS growth include Communication Services, Healthcare, Consumer Discretionary, Consumer Staples, and Industrials, in descending order. As noted, Energy, Materials, and Real Estate are all down; Materials is off in high single digits, while Energy and Real Estate earnings are down 20%-21% from a year earlier. Second-quarter earnings were coming in about in line with Argus expectations. For 2Q24, Argus continues to model high-single-digit continuing-operations EPS growth for S&P 500 component companies. We see a higher likelihood that our forecast misses on the upside than on the downside. In other words, once all the component companies are tallied, we are more likely to see low-double-digit EPS growth for 2Q24 than we are to see mid-single-digit EPS growth. According to Argus President John Eade, our stock-bond barometer is near equilibrium. Given declining inflation growth and interest rates along with our forecast for high-single-digit EPS growth for 2024 and 2025, coupled with the July-August selloff, stocks appear favorable at current levels. A key risk to valuations would be earnings growth failing to meet the market's targets and/or inflation or interest rates ticking higher. Either of those factors would result in elevated valuations, but represent just modest risks at present. Domestic and Global Markets Growth stocks sectors began to pull away from the broad market in May and extended that leadership in June. Both July and August had strong sell-offs but rallied to post wins for the month. Beneath the surface, both months extended the severe rotation away from growth leaders and toward stocks seen as safer havens. For the first quarter of 2024, the S&P 500 was led by the growth-heavy Nasdaq. But that changed in 2Q24 and, as of mid-year, the Nasdaq was three points ahead of the S&P 500. The indices have flip-flopped once more, with the S&P 500 up 19.5% while the Nasdaq is up 18.6%. In a clear sign of leadership change, Wilshire Large Cap Growth has seen its premium to Wilshire Large Cap Value shrink to nine percentage points; in May and June, this premium was in double-digit percentage points. With investors selling the giants, small-caps have narrowed their underperformance. The Russell 2000 was up about 10% at the end of August, after being up 2% at mid-year. The DJIA is also closing the gap, and is up around 12% for the year. The Barclays Bloomberg U.S. Bond Index was up 2.8% year to date at the end of August after being down 1.7% at mid-year. However, that is down from 3.1% at the end of July. We believe stocks can rally from here, given positive fundamentals in GDP and earnings. We do not expect bond yields to rise much from current levels, given that the Fed is likely to cut interest rates several times by year-end. Investors' nearly two-year fascination with AI stocks has not gone away, but it has moderated somewhat. And AI stock winnings may now be a vital source of funds for investing in other areas perceived as timely in the currently unfolding interest-rate environment. During the third quarter to-date, the two best-performing sectors have been Utilities and Real Estate. Two months into the third quarter, the iShares Real Estate ETF (IYR) is up 15.6% for 3Q24; and the iShares Dow Jones US Utility ETF is up 10.7%. Both sectors are perceived as sensitive to interest rates, and both have historically moved into favor when market rates of interest are declining. Other leading sectors in 3Q24 include Financial, Healthcare, Consumer Staples, and Industrial; all are up in the 8%-11% range for the quarter-to-date. Financial stocks such as banks would seem vulnerable to compression in net interest margins but should also gain from strengthening in fee-based businesses. Healthcare stocks are expected to benefit as lower interest rates enable more discretionary medical procedures (i.e., new hips and knees). Industrial stocks are dependent on business-to-business (B2B) transactions and thus benefit from lower financing rates on major deals. The bottom-five sector stocks in 3Q24 include two of this year's big winners: Information Technology, down 2%, and Communication Services, up 2% for 3Q24, despite being up 27% and 23%, respectively, for all of 2024 to date. Two of the other 3Q laggards, Energy and Materials, are also lagging in the year-to-date, as the malaise from China (which is partly demographic) overhangs all parts of the commodities complex. Consumer Discretionary was among the bottom two sectors (along with Real Estate) in the first half. Given prospects for lower rates helping the housing and automotive segments, Consumer Discretionary is doing a bit better - but is still in second-to-last place among 11 sectors in 2024. During the third quarter, investors have been shifting winnings from growth stocks into cyclical and defensive stocks, along with stocks in high-income sectors perceived as benefiting from lower interest rates. The traditional growth sectors had big year-to-date leads heading into 3Q24 and those leads continue to hold. But the market is showing refreshing breadth with the shift toward formerly shunned parts of the market. This shift first got underway in July and intensified in August. During August, Information Technology lost 0.4 percent of sector weight, reducing to a 31% weighting from a record 31.4% earlier in the year. Consumer Discretionary and Communication Services, two other leading sectors from 2023, both lost sector weight. The sectors that gained the most in August were Healthcare, up 0.3 percentage point; Staples, up 0.2 point; and Financial, up 0.2 point. Industrial, Utilities, and Real Estate also gained weight. The latter two interest-rate-sensitive sectors are tiny, weighing in at less than 2.5% during 2024 after averaging 3% weight in the years before the Fed began its rate-hiking cycle. We expect these sectors to gradually get bigger as the rate-cut cycle progresses, though they may not reach past peaks in the 3% range. Like the U.S. market, global stocks did better in 2023 than they did in 2022; and most carried that momentum into mid-year 2024. Global stocks have also been impacted by the summer 2024 sell-off. Asia has been particularly weak, but this region led the market at mid-year and still remains near the top. Compared to 2023, we continue to see some changes in international stock-market leadership in 2024. On average, our composite of global bourses is up about 9% year-to-date in 2024, after being up 7% the first half of the year. Currently, the U.S. is leading in 2024; but negative performances by Brazil and Mexico are weighing on Americas' performance. In terms of our themes, mature economies are in front in 2024 with a 15% gain; this theme also won 2023 with a 22% gain. Asian markets are up 12%, as rising India and Japan are joined by China. Americas markets (including U.S., Brazil, Mexico and Canada) are up 7% in 2024 after rising 20% in 2023. BRICs-minus-Russia is up 5% in 2024 after also lagging in 2023. Resources economies (up 2%) have not lived up to last year's 18% gain. Conclusion The U.S. stock market has banked a strong high-teens percentage gain through the first eight months of the year. Although the market must get through volatile and often negative September, the three best trading months of the year lie ahead. Typically, the S&P 500 rises about 4.8% in the fourth quarter. In years in which the S&P 500 is up in double-digit percentages through September-end, fourth-quarter performance is as much as twice as strong as in all years since 1980. But this is a presidential election year, and uncertainty remains. Amid the uncertainty, we will continue to focus on the solid fundamentals in the economy and in corporate earnings. At the stock level, we would prioritize the high-quality, BUY-rated companies in Argus coverage with blue-chip finances, seasoned leadership teams, and sustainable advantage in key end-markets.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Merck & Co Inc (MRK); Crowdstrike Holdings Inc (CRWD); Mondelez International Inc. (MDLZ); Hewlett Packard Enterprise Co (HPE) and the Focus List deletions are CIENA Corp. (CIEN); General Mills, Inc. (GIS); ServiceNow Inc (NOW); Vertex Pharmaceuticals, Inc. (VRTX).

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Merck & Co Inc (MRK); Crowdstrike Holdings Inc (CRWD); Mondelez International Inc. (MDLZ); Hewlett Packard Enterprise Co (HPE) and the Focus List deletions are CIENA Corp. (CIEN); General Mills, Inc. (GIS); ServiceNow Inc (NOW); Vertex Pharmaceuticals, Inc. (VRTX).

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.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from global events. As well, the prices of SMID stocks generally are lower than the prices of large-caps. As well, there are long stretches in the record books when SMID stocks have outperformed large-caps. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over a 2003-2021 test period, versus 4.3% for large-caps. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.

U.S. stocks rose on Thursday morning as investors digested new economic data. Last week's initial jobless claims were 217,000, unchanged from the prior week's revised level. Ongoing unemployment was 1,906,000, an increase of 8,000 from the previous week's re-vised level. That leaves the insured unemployment rate at 1.3%. The international trade deficit widened to 67.4 billion in January according to the U.S. Bureau of Economic Analysis. Exports inched up by $0.3 billion, with automobiles and parts exports rising $1.4 billion while industrial supplies and material exports fell $1.7 billion. The S&P 500 rose 0.9%, the Dow 0.3% and the Nasdaq gained 1.4%. Crude oil traded just above $79 per barrel, while gold rose $7 to $2165 per ounce.

Stocks rose on Thursday morning as investors awaited the November employment report on Friday. Weekly unemployment claims were largely in line with expectations. The Labor Department said that first-time claims rose by 1,000 to a seasonally adjusted 220,000 for the week ended December 2, slightly below the Reuters consensus forecast of 222,000. Continuing claims fell by 64,000 to 1.861 million. Meanwhile, outplacement firm Challenger, Gray & Christmas said that U.S. employers announced 45,510 layoffs in November, up 24% from October but down 41% from November 2022. The Dow was flat, the S&P rose 0.5%, and the Nasdaq rose 0.7%. Crude oil rose 1% to $70 per barrel, while gold fell $5 to $2043 per ounce.

The Federal Reserve's favorite inflation indicator, the PCE Price Index, will be released by the BEA on Friday. The index differs from the Consumer Price Index in that its composition is changed more frequently and is quicker to reflect real-time pricing fluctuations. In the report from July, PCE inflation was 3.3% (the latest CPI report, from August, had inflation at 3.7%). Core PCE, which removes volatile food and energy prices, was 4.2% in the latest month, up from 4.1% the month prior. Our forecasts call for a relative stability on both PCE rates: 3.4% for the headline number and 4.0% for the core reading. Overall, inflation appears to have peaked in summer 2022 and is on a downward trek, though the rate of decline is stalling a bit. We track 20 inflation measures on a monthly basis. On average, they indicate prices are rising at a 3.0% rate year-over-year, up from 2.8% a month ago. The numbers are distorted by a sharp decline in Producer Price Intermediate Goods, which are falling at a 27% rate and likely point to easing prices across the inflation spectrum. Focusing on core inflation -- which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy, the core GDP PCE Price Index, the five-year forward inflation expectation rate, and the 10-year TIPs Break-even Interest Rate -- our reading is 3.34%, down three basis points month-over-month. That's largely because sticky prices like shelter and transportation finally are easing; the Sticky Price Core CPI Index reading is currently 4.7% versus 5.6% a month ago. Looking ahead, investors are expecting the Fed's rate hikes ultimately will tame inflation, with the five-year forward expectation rate at 2.4%.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Jim typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY at Argus.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Catalent Inc. (CTLT); Splunk Inc (SPLK); Twilio Inc (TWLO); CIENA Corp. (CIEN) and the Focus List deletions are Biogen Inc (BIIB); Arista Networks Inc (ANET); Netflix Inc (NFLX); Shopify Inc (SHOP).

Stocks declined on Thursday morning. According to the Labor Department, initial jobless claims fell 13,000 to 218,000 in the latest week, which was lower than expected. Ongoing unemployment claims fell 40,000 to 1,679,000. U.S. nonfarm labor productivity was revised up slightly to an increase of 3.5% in the second quarter. Apple continues to fall after a report that China has banned government officials from using iPhones for work. The S&P 500 fell 0.3%, the Nasdaq was down 0.1%, while the Dow rose 0.2%. Crude oil traded near $87 per barrel and gold fell $1 to $1943.

The S&P 500 rose 1.5% on June 2, closing at its highest level since August 18, 2022, and breaking resistance near 4,200. The index was led by 2023 laggards Basic Materials (XLB), Energy (XLE), Industrials (XLI), Financials (XLF), and Real Estate (XLRE) -- so perhaps some of the reversion to the mean we recently discussed is starting to gain some traction. Strength was also seen in Consumer Discretionary, a 2023 leader.

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $15 billion to define a SMID stock.

Stocks rose on Thursday, with the S&P 500 snapping a five-day losing streak, as investors weighed a slight increase in weekly unemployment claims and awaited the November PPI report on Friday morning. After the close, Costco reported weaker-than-expected fiscal 1Q sales and earnings, sending the shares down in after-hours trading. The Dow rose 0.55%, the S&P 0.75%, and the Nasdaq 1.13%. Crude oil traded near $72 per barrel, while gold rose $3 to $1801 per ounce.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky -- and large-caps outperformed SMID stocks in 11 of the 19 years in our test period. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Stocks were higher Friday morning as the August jobs report showed the economy added 315,000 jobs, compared to the projected 300,000. However, the gain was far less than the 526,000 jobs added in July and the unemployment rate actually rose to 3.7%. Analysts had predicted the rate to stay flat, as the labor force participation rate jumped from 62.1% to 62.4%. The Dow rose 1.1%, the S&P 1.2%, and the Nasdaq was up 1.1%. Crude oil rose 2% to $88 per barrel, while gold rose $16 to $1726 per ounce.

Stocks rallied on Thursday, led by the Consumer Discretionary, Communication Services, and Technology sectors. Tesla and Nvidia shares both rose strongly, and Microsoft finished higher despite the cut in its current-quarter guidance. On the employment front, first-time claims for state unemployment benefits fell to 200,000 for the week ended May 28, down from 211,000 a week earlier and below the consensus estimate. ADP also reported that U.S. companies added 128,000 payroll jobs in May, down from 202,000 in April and well below the consensus forecast of 300,000. The data came ahead of the government's May employment report on Friday morning. The Reuters consensus calls for 325,000 new payroll jobs after a gain of 428,000 in April. The Dow rose 1.33%, the S&P 1.84%, and the Nasdaq 2.69%. Crude oil traded near $118 per barrel, while gold rose $25 to $1874 per ounce.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine. As well, the prices of SMID stocks generally are lower than the prices of large-caps. That said, SMID stocks can be risky and large-caps outperformed SMID stocks in 11 of the 19 years in our test period. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

The volume of insider transactions has been lower than normal over the past month, impacted first by trading restrictions during earnings season and then by Russia's invasion of Ukraine. But trading activity picked up over the last week -- and a review of data from Vickers Stock Research suggests a cautious stance from executives, directors, and beneficial owners. Over 1900 transactions from last week met the criteria for inclusion in Vickers' Weekly Insider Report, up from less than 1,200 in the prior week and a weekly average of about 1,300 over the past year.

Just like that, Christmas is less than two weeks away and the end of the year is nigh. And just like the bathrobe-clad kid in "The Polar Express," investors want to believe -- if not in Santa, than at least in his rally.

Stocks fell on Thursday, led by losses in the Consumer Discretionary and Technology sectors, as investors awaited consumer price data on Friday morning. On the employment front, first-time jobless claims fell to 184,000, down from the prior week and below the consensus forecast. However, continuing claims rose to 1.992 million, up from 1.954 million a week earlier and above the consensus estimate. The Dow finished flat, while the S&P fell 0.72% and the Nasdaq dropped 1.71%. Crude oil fell $2 to $70.50 per barrel, while gold fell $10 to $1775 per ounce.

Small- and mid-cap stocks (SMID stocks) soared in 2019. They have underperformed large-caps over the past 12 months, but still may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be poised to rebound more quickly once COVID-19 vaccines are more widely distributed and the domestic service economy recovers. As well, the prices of SMID stocks generally are lower than the prices of large-caps. That said, SMID stocks can be risky. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. The Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Stocks rose on Thursday morning, led by the Energy and Industrial sectors. On the employment front, the Labor Department said that first-time claims for state unemployment benefits fell to 340,000 for the week ended August 28, down from 354,000 a week earlier and below the consensus forecast of 345,000. The Dow rose 0.4%, the S&P 0.3%, and the Nasdaq 0.3%. Crude oil rose nearly $2 to $70 per barrel, while gold traded near $1811 per ounce.

Stocks rose on Friday morning, led by the Technology sector, as another disappointing jobs report diminished concerns about an overheating economy and the potential for a near-term reduction in the Fed's bond buying program. The Labor Department said that the U.S. added 559,000 payroll jobs in May, up from 278,000 in April but below the Reuters consensus forecast of 650,000. The official unemployment rate fell to 5.8% from 6.1% in April. The Dow rose 0.3%, the S&P 0.6%, and the Nasdaq 1.4%. Crude oil traded near $69 per barrel, while gold rose $22 to $1895 per ounce.

Stocks gave up early gains on Friday morning as Treasury yields continued to rise in the wake of a much stronger-than-expected February employment report. The Labor Department said that the U.S. added 379,000 nonfarm payroll jobs in February, up from a revised 166,000 in January and well above the Reuters consensus forecast of 182,000. The official unemployment rate also fell slightly to 6.2% from 6.3% in January. The Dow rose 0.2%, the S&P fell 0.2%, and the Nasdaq fell 1.5%. Crude oil traded near $66 per barrel, while gold fell $5 to $1696 per ounce.

Small- and mid-cap stocks (SMID stocks) surged in the past quarter. They also have outperformed large-caps over the past 12 months and may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be poised to rebound more quickly once COVID-19 vaccines are widely distributed and the economy recovers. As well, the prices of SMID stocks are generally lower than the prices of large-caps. While SMID stocks can be risky, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20%-25% of the U.S. stock market's capitalization is comprised of SMID stocks. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. We note that the Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Small- and mid-cap stocks (SMID stocks) surged in the past quarter. They also have outperformed large-caps over the past 12 months and may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be poised to rebound more quickly once COVID-19 vaccines are widely distributed and the economy recovers. As well, the prices of SMID stocks are generally lower than the prices of large-caps. While SMID stocks can be risky, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20%-25% of the U.S. stock market's capitalization is comprised of SMID stocks. Investors used to use a $2 billion market-cap threshold to define a small-cap stock and a $10 billion threshold for a mid-cap. We note that the Russell 2000 index now includes numerous companies with market capitalizations above $15 billion. For our purposes, we use a threshold of $20 billion to define a SMID stock.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Anthem Inc (ANTM); Activision Blizzard Inc (ATVI); Coca-Cola Co (KO); International Business Machine (IBM) and the Focus List deletions are Procter & Gamble Co. (PG); Electronic Arts, Inc. (EA); CIENA Corp. (CIEN); Vertex Pharmaceuticals, Inc. (VRTX).

Stocks finished mixed on Thursday as disappointing employment data again pointed to a slowing economic recovery. First-time claims for state unemployment benefits rose above the 800,000 mark for the first time since September and came in well above the consensus forecast. Continuing claims of 5.757 million also rose from the prior week and exceeded the consensus of 5.210 million. The Dow fell 0.23%, the S&P fell 0.13%, and the Nasdaq rose 0.54%. Crude oil rose to $47 per barrel, while gold rose $1 to $1840 per ounce.

The stock market had an interesting week before the Labor Day holiday. On 9/2/20, the S&P 500 and Nasdaq Composite set new all-time highs, as they have done dozens of times in 2020. Further, the Dow Jones Industrial Average closed above 29,000 for the first time since 2/22/20. Then, fierce selling on 9/3/20 was followed by moderate, but still intense, profit taking on 9/4/20.

The stock market had an interesting week before the Labor Day holiday. On 9/2/20, the S&P 500 and Nasdaq Composite set new all-time highs, as they have done dozens of times in 2020. Further, the Dow Jones Industrial Average closed above 29,000 for the first time since 2/22/20. Then, fierce selling on 9/3/20 was followed by moderate, but still intense, profit taking on 9/4/20.

Our bond/stock model asset allocation now favors bonds over stocks, despite record-low yields, as the April-August rally in equities has lifted them to near-record price levels. This is the first stock-market premium to bonds since 2007. Our model takes into account current levels and forecasts of bond yields, inflation, stock prices, GDP and corporate earnings. 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 0.18 sigma. The current valuation level is 0.29 sigma premium for stocks -- a slight overvaluation. The model has generally done a good job of highlighting value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading consistently lower over recent decades. The model indicated that stocks were at a sharp premium to fair value prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession in 2007-2009. Starting in 2009, the model favored stocks -- another good call. As the chart shows, the market can manage with premiums and discounts for extended periods of time. Equity valuations will likely start to improve once corporate earnings begin to rebound.

Our bond/stock model asset allocation now favors bonds over stocks, despite record-low yields, as the April-August rally in equities has lifted them to near-record price levels. This is the first stock-market premium to bonds since 2007. Our model takes into account current levels and forecasts of bond yields, inflation, stock prices, GDP and corporate earnings. 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 0.18 sigma. The current valuation level is 0.29 sigma premium for stocks -- a slight overvaluation. The model has generally done a good job of highlighting value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading consistently lower over recent decades. The model indicated that stocks were at a sharp premium to fair value prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession in 2007-2009. Starting in 2009, the model favored stocks -- another good call. As the chart shows, the market can manage with premiums and discounts for extended periods of time. Equity valuations will likely start to improve once corporate earnings begin to rebound.

The S&P 500 is on track to wrap its best August since 1986. Already up 7.0% for August 2020, the index is just behind its August 1986 gain of 7.1%. Investors everywhere are touting 1986's epic performance; fewer have mentioned that in September 1986, the index slumped 8.5%.

The S&P 500 is on track to wrap its best August since 1986. Already up 7.0% for August 2020, the index is just behind its August 1986 gain of 7.1%. Investors everywhere are touting 1986's epic performance; fewer have mentioned that in September 1986, the index slumped 8.5%.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Director of Research Kelleher typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Director of Research Kelleher typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Enbridge Inc (ENB); Fidelity Natl Information Serv (FIS); CIENA Corp. (CIEN); TJX Companies, Inc. (TJX) and the Focus List deletions are American Express Co. (AXP); Oneok Inc. (OKE); Wayfair Inc (W); Western Digital Corp. (WDC).

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Enbridge Inc (ENB); Fidelity Natl Information Serv (FIS); CIENA Corp. (CIEN); TJX Companies, Inc. (TJX) and the Focus List deletions are American Express Co. (AXP); Oneok Inc. (OKE); Wayfair Inc (W); Western Digital Corp. (WDC).

Stocks pulled back on Thursday, ending a four-day rally, as investors paused ahead of the government's May employment report on Friday morning. The Reuters consensus calls for a loss of 8 million payroll jobs after a record drop of 20.537 million in April, and a 19.8% unemployment rate, up from 14.7% in April. The Dow rose 0.05%, the S&P fell 0.34%, and the Nasdaq fell 0.69%. Crude oil fell slightly to $37 per barrel, while gold rose $19 to $1723 per ounce.

Stocks pulled back on Thursday, ending a four-day rally, as investors paused ahead of the government's May employment report on Friday morning. The Reuters consensus calls for a loss of 8 million payroll jobs after a record drop of 20.537 million in April, and a 19.8% unemployment rate, up from 14.7% in April. The Dow rose 0.05%, the S&P fell 0.34%, and the Nasdaq fell 0.69%. Crude oil fell slightly to $37 per barrel, while gold rose $19 to $1723 per ounce.

Large-caps have outperformed over the past 12 months, but small- and mid-caps may be in a better position to generate market-beating returns going forward. For one thing, many smaller companies often are more focused on domestic operations and may not be exposed to the global economic uncertainty caused by the coronavirus. For another, prior to COVID-19, the long-term record favored small-caps over large-caps. From 2003-2019, the Russell 2000 Index had climbed 282%, compared to an advance of 233% for the Russell 1000 Index. In 2020, a relatively weak performance by the Russell 2000 Index has brought the measures more in line for the year-to-date. SP despite risks associated with smaller-cap stocks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 15%-20% of the U.S. stock market's capitalization is comprised of small- and mid-cap stocks.

Large-caps have outperformed over the past 12 months, but small- and mid-caps may be in a better position to generate market-beating returns going forward. For one thing, many smaller companies often are more focused on domestic operations and may not be exposed to the global economic uncertainty caused by the coronavirus. For another, prior to COVID-19, the long-term record favored small-caps over large-caps. From 2003-2019, the Russell 2000 Index had climbed 282%, compared to an advance of 233% for the Russell 1000 Index. In 2020, a relatively weak performance by the Russell 2000 Index has brought the measures more in line for the year-to-date. SP despite risks associated with smaller-cap stocks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 15%-20% of the U.S. stock market's capitalization is comprised of small- and mid-cap stocks.

Stocks scored a win last week -- as in the best market week in 82 years, even as Friday was a down day. The rally had some investors wondering if "the low was in." But in past big selloffs, the confirming low re-test has come months later.

Stocks scored a win last week -- as in the best market week in 82 years, even as Friday was a down day. The rally had some investors wondering if "the low was in." But in past big selloffs, the confirming low re-test has come months later.

Stocks ended broadly lower on Friday, though up from the worst levels of the day, on lingering fears of the economic impact of the coronavirus as the number of cases globally exceeded 100,000. The Dow Jones Industrial Average fell 1.0%, the Nasdaq Composite was down 1.9% and the S&P 500 was off by 1.7%. Sharp daily swings remained the theme for the week, but 4% up moves on Monday and Wednesday allowed stocks to finish with gains for the week, measuring 1.8% for the Dow, 0.6% for the S&P 500 and 0.1% for the Nasdaq. Year-to-date losses improved to 9.4% for the Dow, 4.4% for the Nasdaq and 8.0% for the S&P 500.

Stocks ended broadly lower on Friday, though up from the worst levels of the day, on lingering fears of the economic impact of the coronavirus as the number of cases globally exceeded 100,000. The Dow Jones Industrial Average fell 1.0%, the Nasdaq Composite was down 1.9% and the S&P 500 was off by 1.7%. Sharp daily swings remained the theme for the week, but 4% up moves on Monday and Wednesday allowed stocks to finish with gains for the week, measuring 1.8% for the Dow, 0.6% for the S&P 500 and 0.1% for the Nasdaq. Year-to-date losses improved to 9.4% for the Dow, 4.4% for the Nasdaq and 8.0% for the S&P 500.

As a stock theory, The January Effect holds that investors who sell stocks for tax-loss purposes in December come back into the market in January, leading to outsized gains. The academic literature on this theory is mixed -- and last year, there was not a ton of tax-loss candidates to sell. Ultimately, January is only the sixth-best stock month on the S&P 500, with an average 1.03% gain since 1980. In descending order, the five months better than January are April, November, March, December and October.

As a stock theory, The January Effect holds that investors who sell stocks for tax-loss purposes in December come back into the market in January, leading to outsized gains. The academic literature on this theory is mixed -- and last year, there was not a ton of tax-loss candidates to sell. Ultimately, January is only the sixth-best stock month on the S&P 500, with an average 1.03% gain since 1980. In descending order, the five months better than January are April, November, March, December and October.

Stocks rose on Thursday following reports that the U.S. had offered to cancel tariffs scheduled to take effect on December 15, and lower other tariffs, as part of a trade deal with China. Later reports indicated that the U.S. had reached a 'deal in principle' with China, though without providing details. Investors also weighed new producer price and employment data. The Labor Department said that its producer price index was flat in November, down from a 0.4% increase in October and below the Reuters consensus forecast of 0.2% growth. On the employment front, the Labor Department said that first-time unemployment benefit claims rose by 49,000 to a seasonally adjusted 252,000 for the week ended December 7. The reading was the highest since September 2017 and above the consensus forecast of 213,000. The Dow rose 0.79%, the S&P 0.86%, and the Nasdaq 0.73%. Crude oil rose 1% to about $59 per barrel, while gold fell slightly to $1474 per ounce.

Stocks rose on Thursday following reports that the U.S. had offered to cancel tariffs scheduled to take effect on December 15, and lower other tariffs, as part of a trade deal with China. Later reports indicated that the U.S. had reached a 'deal in principle' with China, though without providing details. Investors also weighed new producer price and employment data. The Labor Department said that its producer price index was flat in November, down from a 0.4% increase in October and below the Reuters consensus forecast of 0.2% growth. On the employment front, the Labor Department said that first-time unemployment benefit claims rose by 49,000 to a seasonally adjusted 252,000 for the week ended December 7. The reading was the highest since September 2017 and above the consensus forecast of 213,000. The Dow rose 0.79%, the S&P 0.86%, and the Nasdaq 0.73%. Crude oil rose 1% to about $59 per barrel, while gold fell slightly to $1474 per ounce.

The stock market had an interesting week before the Labor Day holiday. On 9/2/20, the S&P 500 and Nasdaq Composite set new all-time highs, as they have done dozens of times in 2020. Further, the Dow Jones Industrial Average closed above 29,000 for the first time since 2/22/20. Then, fierce selling on 9/3/20 was followed by moderate, but still intense, profit taking on 9/4/20.

Our bond/stock model asset allocation now favors bonds over stocks, despite record-low yields, as the April-August rally in equities has lifted them to near-record price levels. This is the first stock-market premium to bonds since 2007. Our model takes into account current levels and forecasts of bond yields, inflation, stock prices, GDP and corporate earnings. 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 0.18 sigma. The current valuation level is 0.29 sigma premium for stocks -- a slight overvaluation. The model has generally done a good job of highlighting value. For example, stocks were very attractive compared to bonds in the late 1970s, when benchmark Treasury rates were in the high teens before heading consistently lower over recent decades. The model indicated that stocks were at a sharp premium to fair value prior to the "dot-com" crash of 2001 and also at a premium prior to the Great Recession in 2007-2009. Starting in 2009, the model favored stocks -- another good call. As the chart shows, the market can manage with premiums and discounts for extended periods of time. Equity valuations will likely start to improve once corporate earnings begin to rebound.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Enbridge Inc (ENB); Fidelity Natl Information Serv (FIS); CIENA Corp. (CIEN); TJX Companies, Inc. (TJX) and the Focus List deletions are American Express Co. (AXP); Oneok Inc. (OKE); Wayfair Inc (W); Western Digital Corp. (WDC).

The S&P 500 is on track to wrap its best August since 1986. Already up 7.0% for August 2020, the index is just behind its August 1986 gain of 7.1%. Investors everywhere are touting 1986's epic performance; fewer have mentioned that in September 1986, the index slumped 8.5%.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Director of Research Kelleher typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY.

Stocks pulled back on Thursday, ending a four-day rally, as investors paused ahead of the government's May employment report on Friday morning. The Reuters consensus calls for a loss of 8 million payroll jobs after a record drop of 20.537 million in April, and a 19.8% unemployment rate, up from 14.7% in April. The Dow rose 0.05%, the S&P fell 0.34%, and the Nasdaq fell 0.69%. Crude oil fell slightly to $37 per barrel, while gold rose $19 to $1723 per ounce.

Large-caps have outperformed over the past 12 months, but small- and mid-caps may be in a better position to generate market-beating returns going forward. For one thing, many smaller companies often are more focused on domestic operations and may not be exposed to the global economic uncertainty caused by the coronavirus. For another, prior to COVID-19, the long-term record favored small-caps over large-caps. From 2003-2019, the Russell 2000 Index had climbed 282%, compared to an advance of 233% for the Russell 1000 Index. In 2020, a relatively weak performance by the Russell 2000 Index has brought the measures more in line for the year-to-date. SP despite risks associated with smaller-cap stocks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 15%-20% of the U.S. stock market's capitalization is comprised of small- and mid-cap stocks.

Stocks scored a win last week -- as in the best market week in 82 years, even as Friday was a down day. The rally had some investors wondering if "the low was in." But in past big selloffs, the confirming low re-test has come months later.

Stocks ended broadly lower on Friday, though up from the worst levels of the day, on lingering fears of the economic impact of the coronavirus as the number of cases globally exceeded 100,000. The Dow Jones Industrial Average fell 1.0%, the Nasdaq Composite was down 1.9% and the S&P 500 was off by 1.7%. Sharp daily swings remained the theme for the week, but 4% up moves on Monday and Wednesday allowed stocks to finish with gains for the week, measuring 1.8% for the Dow, 0.6% for the S&P 500 and 0.1% for the Nasdaq. Year-to-date losses improved to 9.4% for the Dow, 4.4% for the Nasdaq and 8.0% for the S&P 500.

As a stock theory, The January Effect holds that investors who sell stocks for tax-loss purposes in December come back into the market in January, leading to outsized gains. The academic literature on this theory is mixed -- and last year, there was not a ton of tax-loss candidates to sell. Ultimately, January is only the sixth-best stock month on the S&P 500, with an average 1.03% gain since 1980. In descending order, the five months better than January are April, November, March, December and October.

Against the backdrop of a weaker-than-expected jobs report, stocks closed mixed on Friday. The Dow Jones Industrial Average was up 0.3% and the S&P 500 rose 0.1%, while the Nasdaq Composite was off by 0.2%. Optimism last week over an October resumption of trade negotiations with China helped push stocks back toward record levels. For the holiday-shortened trading week, the Dow climbed 1.5%, while both the S&P 500 and Nasdaq were up 1.8%. Year-to-date gains are now 14.9% for the Dow, 22.1% for the Nasdaq and 18.8% for the S&P 500.The S&P 500 is now only about 1% below its all-time high reached in July.

Against the backdrop of a weaker-than-expected jobs report, stocks closed mixed on Friday. The Dow Jones Industrial Average was up 0.3% and the S&P 500 rose 0.1%, while the Nasdaq Composite was off by 0.2%. Optimism last week over an October resumption of trade negotiations with China helped push stocks back toward record levels. For the holiday-shortened trading week, the Dow climbed 1.5%, while both the S&P 500 and Nasdaq were up 1.8%. Year-to-date gains are now 14.9% for the Dow, 22.1% for the Nasdaq and 18.8% for the S&P 500.The S&P 500 is now only about 1% below its all-time high reached in July.

Stocks rose on Thursday afternoon following reports that the U.S. could delay its plans to place new tariffs on Mexican goods, originally set to begin on Monday. Investors also looked to potential Fed rate cuts to help offset the impact of the Trump administration's trade and tariff policies. On the employment front, the Labor Department said that first-time unemployment benefit claims were flat with the prior week at 218,000, slightly above the consensus forecast. The data came ahead of the government's May employment report on Friday morning. The Reuters consensus calls for an increase of 185,000 new payroll jobs, down from 263,000 in April, and a flat unemployment rate of 3.6%. The Dow rose 0.77%, the S&P 0.72%, and the Nasdaq 0.55%. Crude oil rose nearly 3% to $53 per barrel, while gold rose $5 to $1339 per ounce.

Stocks rose on Thursday afternoon following reports that the U.S. could delay its plans to place new tariffs on Mexican goods, originally set to begin on Monday. Investors also looked to potential Fed rate cuts to help offset the impact of the Trump administration's trade and tariff policies. On the employment front, the Labor Department said that first-time unemployment benefit claims were flat with the prior week at 218,000, slightly above the consensus forecast. The data came ahead of the government's May employment report on Friday morning. The Reuters consensus calls for an increase of 185,000 new payroll jobs, down from 263,000 in April, and a flat unemployment rate of 3.6%. The Dow rose 0.77%, the S&P 0.72%, and the Nasdaq 0.55%. Crude oil rose nearly 3% to $53 per barrel, while gold rose $5 to $1339 per ounce.

As expected, the S&P 500 has seen its near-term momentum blunted by the three highs from late 2018 that comprise near-term resistance. Those highs, representing the market's last stand in 2018 before plunging to the Christmas Eve low, range across 2,810 from 10/17/18; 2,814 from 11/7/18; and 2,790 from 12/3/18.

As expected, the S&P 500 has seen its near-term momentum blunted by the three highs from late 2018 that comprise near-term resistance. Those highs, representing the market's last stand in 2018 before plunging to the Christmas Eve low, range across 2,810 from 10/17/18; 2,814 from 11/7/18; and 2,790 from 12/3/18.