Stocks could be in another holding period after eight straight days of gains for the major indices. In addition, the FOMC minutes from the July 30/31 meeting drop today at 2:00 pm, Jackson Hole and Chairman Powell take center stage on Friday, and a critical EPS report from NVDA comes next Wednesday. The major indices saw modest losses on Tuesday (between 0.2% and 0.3%). Once again, the small-caps took the brunt of the selling, with the Russell 2000 and S&P 600 both falling slightly more than 1%, and the S&P MidCap 400 dropping 0.9%. It was the weakest NYSE breadth day since the panic on August 5. Sector leadership (if you can call it that) was provided by defensive Staples (+0.5%) and Healthcare (+0.4%). Seven sectors saw losses of less than 0.4%. Energy was the big loser, giving up 2.6% as WTI fell back to the $73 region and close to the lows seen in early August. The Nasdaq 100 (QQQ) McClellan Oscillator (market breadth indicator) has traced out a breadth thrust as the oscillator jumped to +90 from -76 in 10 trading days. The indicator also went from below its lower Bollinger Band to above its upper band. We saw a similar combination of moves back in October/November 2023, just when the QQQ started a big move higher. We also have seen similar moves by the oscillator for the S&P 500, with a nice rebound from the S&P 100 as the oscillator rose to +86 from -69. Seasonality is tricky this time of year due to low liquidity. However, there is a weak period just ahead, namely the second half of September. And that is true whether we look at the past 30 years or the past 50 years. (Mark Arbeter, CMT)

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.

Summer Shakeout amid Positive EPS Season The stock market in mid- to late-July experienced its worst stretch of the year, including its worst week since 2022. The strong start to the month sent the S&P 500 and the other major indices to all-time highs. Even following the late-month selloff, stocks entered the final partial trading week of July barely changed for the month. The stasis in the market is consistent with ongoing uncertainty. The nature of the presidential election changed dramatically over the past month. The Fed appears to be teeing up 50 basis points (bps) or possibly even 75 bps of rate cuts by the end of the year. However, no cuts appear likely until mid-September, leaving investors dangling. Consumers too are waiting for rate cuts, whether they know it or not, because a lower fed funds rate is the linchpin to getting the overall interest rate environment down from its multi-year peak. Amid the uncertainty, the second-quarter earnings season mostly has been a bright spot. While good past-quarter earnings are always important, investors hold their breaths regarding current-quarter outlooks. Companies have generally reaffirmed the moderately positive outlook for the full year, which is still trending toward high single-digit to low double-digit EPS growth for 2024. Up and Down in July The S&P 500, which came into mid-year up 14.5% for 2024, piled on an additional 3.8% in the first half of July. The index was up 18.8% for the year at its all-time closing peak of 5,667 on 7/16/24. By 7/19/24, the S&P 500 had shed over 100 points. And by 7/25/24, the index had lost more than 260 points from its all-time high, to close at 5,399. Given the strong start to the month, followed by equally strong selling, the S&P 500 entered the final partial trading week of July up 14.4% for the year - barely budged from where it stood at mid-year. The Trump assassination attempt and the switch in Democratic presidential contenders occurred in the space of two weekends. However, rather than point to political upheaval, most investors attributed the July selling to a much-needed correction in extremely overbought names in the Information Technology and Communication Services sectors. While some wealth flowed out of all equities in the late-July period, much of the proceeds from tech stock redemptions flowed into other sectors. With three trading days remaining in the month as of 7/26/24, Information Technology (IYW) was down 4% for the month of July; and Communication Services (XLC) was down just under 2%. Where did the money go? Lots flowed into the Financial sector (IYF), which was up 7% for the month. Upcoming cuts in the fed funds rate will pinch banks' net interest margins. However, the 2Q earnings season for the sector has been highly positive, featuring significant recovery in fee-based businesses such as investment banking. Those upcoming lower interest rates can also be expected to rekindle loan and mortgage growth, which have been an ongoing negative amid generally positive bank earnings results. Other winning sectors in July include Industrials (IYJ), up 4.5%; Utilities (IDU), up 3.3%; Healthcare, up 2.9%; Consumer Staples, up 2.5%; and Materials, up 2.4%. Most of these sectors rose with the market early in the month and then were able to hold onto their gains on generally positive second-quarter earnings results. As we prepared this report, the market on 7/29/24 was oscillating, rising in the morning on earnings optimism toward traditional growth leaders and then selling off by midday on fears those companies would disappoint. The market response to upcoming earnings and other major non-technology companies could determine not just the July outcome, but also the market's performance in August and into summer-end. Second-Quarter Earnings Season The above-cited July 29-through-August 2 period will be the biggest week in 2Q24 EPS season, with about one-third of S&P 500 components companies reporting results. We will be sure to weigh in on the biggest earnings week, which culminates with equally big economic news, the nonfarm payrolls for July on 8/2/24. In the interim, and based on 2Q24 EPS data through 7/26/24, the second-quarter earnings season has been a success so far. With just over 180 companies (36%) of S&P 500 component companies reporting, second-quarter 2024 earnings from continuing operations are up 9.1% on a share-weighted basis compared with 2Q23 EPS. According to Bloomberg, 2Q24 earnings are up 14.8% on a market-cap-weighted basis. This premium of market-cap-weighted to share-weighted EPS growth is consistent with recent quarters and is reflective of the earnings outperformance of the largest capitalization companies compared with small and mid-caps. According to the other earnings compiling agencies, FactSet reports 9.8% earnings growth for 2Q24 as of 7/26/24; and Refinitiv is reporting 12% earnings growth. Variation in performance measurements among FactSet, Refinitiv and Bloomberg reflect minor differences in calculating continuing operations earnings as well as different prior-year baselines. For the remainder of our 2Q earnings report card, we will mainly source Bloomberg data unless otherwise noted. An unusually high percentage of companies (31%) 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 69% 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 particularly in 4Q24. About 79% of companies have reported positive EPS surprises in 2Q24, compared with (again) a high 14% of companies reporting negative surprises. According to FactSet, 78% of companies have reported positive EPS surprises. These percentage are above the 10-year average of 74%. For these companies, the median beat against consensus estimates is 5.2% (FactSet has it at 4.4%). 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 the 16%-17% range year over year. Communication Services 2Q24 earnings are up 15%. Other sectors reporting positive EPS growth include Healthcare, Consumer Discretionary, Consumer Staples, and Industrials, in descending order; all are up in the 2%-4% range. 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. From a statistical standpoint, 36% would be considered a fairly reliable and predictive sample size. Timing of the remainder of 2Q24 earnings season, however, may introduce some variability. Over 61% of Financial companies have already reported, in what has been a better-than-anticipated season for the sector. Only 23% of Energy companies have reported; given similar sensitivity off all component companies to key commodities (oil and natural gas), the contribution from this sector will likely continue to pull down overall results. The swing sector is likely to be Information Technology. Fewer than 30% of tech companies have reported. Further, 2Q earnings from the heavy hitters (Apple, Microsoft, etc.) are not reflected in the data discussed above. Earnings from the big Healthcare, Industrial, and Consumer Discretionary (AMZN) companies could also play an outsized role. 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. Conclusion Investors will veer away from earnings analysis for a few hours on the morning of 8/2/24 to assess the state of the labor economy. Argus Chief Economist Chris Graja, CFA, forecasts 185,000 new nonfarm payroll jobs for July, approximately in line with the 188,000 consensus forecast. The bigger focus will be on the unemployment rate, which was 4.1% in June. If July unemployment hits 4.2%, that would trigger the Sahm indicator. When unemployment rises 50 bps within a cycle, the Sahm rule posits, recession follows or has already begun. In this scenario, deteriorating labor markets become 'a self-reinforcing feedback loop,' according to former New York Fed president William Dudley. Secular and demographic factors may argue for structurally lower unemployment rates over the long term. This includes ongoing retirements from within the huge Baby Boomer cohort, and a smaller pool of workers from the generational cohorts that follow available to fill vacant boomer positions. Triggering the Sahm rule, nonetheless, would be a warning sign and presumably a wake-up call for the Fed to focus on the fight in front of it (preventing recession) and not the nearly won war against inflation.

Things are starting to get ugly, with a smell of panic in Technology land as the "can't miss" semiconductor stocks are stinking it up. But at least the money fleeing those stocks is being moved into other areas of the market. The NYSE, Dow Jones Industrials, the S&P 500 equal weight, the S&P MidCap 400, the Russell 2000, and the S&P Small Cap 600 continue to catch a bid -- with most remaining near all-time highs. We had mixed results after the bell, with MSFT down 2.6% and AMD up 9%. MSFT had been hanging near its 100-day average while AMD had been destroyed in recent months. The most-loved semi, NVDA ($103.73) fell another 7% Tuesday and has given back 23.5%. But the stock is still up massively from $11 in October 2022. In our July 25 comment, we proffered that those looking to add/start a position in NVDA should note that there is an unfilled gap at $106.50, the 21-week exponential at $104, and another unfilled gap as well as the last breakout area at $96. So with pain comes opportunity -- and we have now entered a potential region of support. The iShares Semiconductor ETF (SOXX $220.58) has cratered almost 17% over the past 14 sessions, its largest decline in that time period since June 2022 (which was during a tough bear market for Information Technology). There is a cluster of support near $200, which includes the last low in April, trendline support off the lows since October 2022, and a 38.2% retracement of the bull market. Distribution days on the Nasdaq 100 (QQQ) and the SOXX continue to add up, as we count seven on both ETFs over the past 14 days. (Mark Arbeter, CMT)

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.

After very nice advances in gold (GLD), silver (SLV), and copper (CPER) from February/March until May, the metals complex cycled into extreme momentum/overbought territory on both daily and weekly timeframes and then pulled back. We have been waiting patiently over the past six to seven weeks for signs of an attractive reentry point. We also wanted to see signs that the U.S. Dollar Index (USD) was topping, as a weakening greenback generally is a favorable backdrop for the metals. All three broke nicely higher on Wednesday, gaining 1% to 3% and breaking their downtrends off highs from the second half of May. At the same time, the dollar has dropped the past three trading days and traced out a lower high, but remains in an uptrend off the late-December lows. We had mentioned that the USD COT data recently deteriorated after being dollar bullish since late last year. GLD held in the best during the pullback, and has traded in a sideways consolidation, while SLV and CPER were hit harder. GLD didn't retrace even a minor 38.2% of its rally from mid-February and never was near daily oversold territory. A range break above $225 could send GLD up to $240 or more, and eventually a lot higher based on the massive base from 2011 until early 2024. SLV retraced 38.2% of its rally and held key trendline support off the secondary low in March. A break over $29/$30 would open the door for a possible jump to the mid- to high-$30s region. CPER generally is a wildcard (and one that is highly volatile), but a break over $31 could also lead to a move to the mid- to high-$30s region. (Mark Arbeter, CMT)

The Federal Reserve wrapped up its latest Open Market Committee meeting yesterday and, as expected, held the federal funds rate steady at 5.25%-5.50%. The rate remains at its highest level since 2000 and is above the long-term average of 4.4%. This is the Fed's plan: keep rates high to push inflation lower. In the meantime, inflation has indeed been on a downward trek. The latest CPI reading was 3.3%, down from 9.1% in July 2022, and the latest core PCE Price Index reading (the Fed's favorite metric) was 2.8%. Yet despite progress, both measures are still well above the Fed's target of 2.0%, and the slope of the downward trajectory has flattened lately. Those are potential problems for a central bank that watched while inflation got out of hand in 2020-2021 and wants to rebuild its reputation as an effective inflation fighter. Here are our key takeaways from the Fed meeting, the follow-up press conference, and the release of the central bank's Summary Economic Projections, commonly referred to as "the dot plot." 1) The median projection for federal funds rate cuts this year is now one, versus the prior forecast for three -- a big move in a hawkish direction. 2) The Fed appears to be trying to balance the positive impact of a restrictive policy on inflation versus the negative impact on low- and moderate-income earners. 3) The shelter component of the inflation readings remains the major problem, though the rate of shelter price increases has slowed. We still think that two cuts is the right number for the Federal Reserve in 2024 and then two more in 2025. We reckon the central bank wants to cut rates in order to save face after previous projections and also get one cut in prior to the presidential election.

Our rating on the Financial sector is Over-Weight. The Fed's rate-hike campaign is expanding net interest margins for banks. We also look for recovery in fee-based businesses, bond issuance, and M&A as the rate cycle winds down. Still, with inflation running hot, companies may cut back on hiring and investments, and thus on business loans. As of the end of April, the sector accounted for 13% of the S&P 500. The sector was outperforming the market with a gain of 12.0%. It underperformed the market in 2023, with a gain of 7% compared to a gain of 24% for the S&P 500. The sector includes money center banks, regional banks, investment banks and brokerages, exchanges, insurers, and financial data companies. Here are the Financial companies that either are on our Focus List or are used in our model portfolios.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

The Federal Reserve wrapped up its latest Open Market Committee meeting last week and, as expected, held the current federal funds rate steady at 5.25%-5.50%. The rate remains at its highest level since 2000 and is above the long-term average of 4.4%. This is the Fed's plan, of course: keep rates high to push inflation lower. In the meantime, inflation has indeed been on a downward trek. The latest CPI reading was 3.5%, down from 9.1% in July 2022, and the latest core PCE Price Index reading (the Fed's favorite metric) was 2.8%. Despite the progress, both measures are still well above the Fed's target of 2.0%, and the slope of the downward trajectory has flattened lately. Those are potential problems for a central bank that watched while inflation got out of hand in 2020-2021 and wants to rebuild its reputation as an effective inflation fighter. Here are our key takeaways from the Fed meeting and the follow-up press conference. 1) Investors liked what was missing from the meeting, namely a discussion of a potential additional rate hike. 2) The Fed's lament of "a lack of progress" on inflation in recent months seemingly has eliminated the prospects for rate cuts in June and July. 3) The central bank's decision to reduce its monthly balance sheet is a "dovish" decision that should still keep the securities lending markets operating smoothly.

Stock Market Looking to Get Past April's Stumble

Economy, Earnings Shaping up as Tailwinds for Early 2024

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Stocks fell again on Thursday morning, extending Wednesday's selloff, as investors weighed a wide range of earnings reports, a tentative labor agreement between Ford and the UAW, and stronger-than-expected GDP data. The Commerce Department, in its advance estimate, said that the U.S. economy expanded at a 4.9% annualized rate in 3Q, up from a revised 2.1% in the second quarter and above the Reuters consensus forecast of 4.3% growth. Meanwhile, first-time claims for state unemployment benefits rose by 10,000 to a seasonally adjusted 210,000 for the week ended October 21. In Europe, the ECB held its benchmark interest rate steady at 4.0%, reflecting progress in combating inflation after more than a year of rate hikes. The Dow fell 0.4%, the S&P 0.7%, and the Nasdaq 1.3%. Crude oil fell more than 2% to $83.50 per barrel, while gold traded near $1988 per ounce.

The country's biggest banks kick off earnings season this week. For sure, this sector has suffered this year following the failure of Silicon Valley Bank and the downward spiral that followed. The KRE (S&P Regional Bank Index) is down 29% year-to-date versus a rise of 12% for the S&P 500. We see opportunity here and have an Over-Weight rating on the sector. We believe the worst is over after the March/April bank failures and that the risk associated with these failures has been factored into share-price valuations. In the earnings reports that start flowing on Friday, we'll be focused on updates in the following areas: loan growth, where we expect growth to have slowed to low single-digits as higher interest rates weigh on consumers and businesses; loan loss provisions, where we see the gauge moving higher as net charge-offs trend toward normal; commercial real estate, where higher interest rates and new post-pandemic social, work, and shopping behaviors magnify the exposure of banks to commercial real estate, and; investment banking, where we are starting to see recovery in M&A and IPO activity. Yes, banks have challenges. Overall, we feel the banks are on solid footing and that valuations at current levels are attractive. Here's a list of our favored banks, broken down by niche.

Argus Research believes that ESG investing is a smart option to consider. Companies committed to ESG values typically reflect positive traits from management which often translate into better business. ESG (Environmental, Social, Governance) investing has come a long way and continues to grow. According to the Global Sustainable Investment Association, global assets under management in ESG strategies were $40 trillion in 2020, up from $23 trillion in 2016 and on track for $50 trillion by 2025. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. In time, the list of industries to avoid increased to include soft drinks, fast food, and oil and gas, among numerous others. But performance of these initial strategies lagged. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across industries that have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights. At Argus Research, we track ESG progress at specific companies as part of our Management analysis -- one of the six points in our proprietary Six-Point System for fundamental research. In addition to reviewing and measuring the ESG proclamations from companies under coverage, we partner with an ESG research firm, JUST Capital, and leverage its analysis and insights. JUST Capital's mission is to drive measurable corporate change to create a stakeholder-centric form of capitalism that reflects the priorities of the American public. JUST utilizes a combination of data-driven research and strategic engagement in an attempt to shift norms and practices in corporate America and the financial markets. JUST ESG Custom Ratings rank stocks in the Russell 1000 on criteria using a scale of 1-100. Drawing on the JUST Capital rankings, we have compiled focused lists of companies followed by Argus Research that are in position to have a "sustainable impact" on the environment, workplace, community, and marketplace. These firms have exemplary records of delivering on the bottom line, and also in improving the environment, contributing to community relations, and showing respect for their employees. We also have a theme model portfolio based in part on ESG criteria. To build the Argus U.S. ESG Theme Model Portfolio, we apply financial concepts such as industry diversification, income generation, risk reduction, and growth at a reasonable price to our various lists. In addition, all stocks must be on the Argus BUY list. For more on JUST Capital's criteria, please visit the JUST Capital website, www.justcapital.com. For more information on the Argus companies, please see our Analyst Reports at www.argusresearch.com. Here are some of the stocks that are currently in the Argus U.S. ESG Theme Model Portfolio.

Stocks rose on Thursday morning, led by strong gains in the Communication Services, Consumer Discretionary, and Technology sectors after a wide range of earnings reports. The gains came a day after an expected 25-basis-point rate hike by the Federal Reserve. Fed Chair Jerome Powell also said that an additional rate hike was possible in September. The Dow rose 0.1%, the S&P 0.5%, and the Nasdaq 1.1%. Crude oil rose nearly 2% to $80 per barrel, while gold fell sharply to $1945 per ounce.

Stocks rose on Thursday morning after stronger-than-expected GDP data. The Commerce Department, in its final estimate, said that the U.S. economy expanded at a 2.0% annualized rate in the first quarter, driven by strength in consumer spending. The reading was up from the prior estimate of 1.3% growth and above the Reuters consensus forecast of 1.4%. On the employment front, first-time claims for state unemployment benefits fell by 26,000 to 239,000 for the week ended June 24, below the Reuters consensus forecast of 265,000. The Dow rose 0.6%, the S&P 0.3%, and the Nasdaq 0.1%. Crude oil rose to $70 per barrel while gold traded near $1920 per ounce.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. According to the Global Sustainable Investment Association, global assets under management in ESG (Environmental, Social, Governance) strategies had grown to $40 trillion in 2020, up from $23 trillion in 2016 and on track for $50 trillion by 2025. The UN Principles for Responsible Investing -- to which Argus Research is a signatory -- now represents more than 5,000 signatories, according to UNPRI.org. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, at first focused on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. In time, the list of industries to avoid increased to include soft drinks, fast food, and oil and gas, among numerous others. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights. Companies and managements are increasingly measured on their adherence to Environmental, Social, and Governance best practice approaches and techniques.

Earnings Season: A Little Better than Expected, But...

We have studied the monthly, quarterly, and annual returns in the stock market since 1980. February is not one of the best months. On average, stocks rise only 0.1% in the month. Only the months of August and September have generated weaker average returns. There have been some strong Februarys, including 7% gains in 1986, 1991, and 1998, as well as a 5.5% surge in 2015. But there have been some clunkers as well: a 6% drop in 1982; a 9% plunge in 2001 during the "dot-com" bust; an 11% collapse near the bottom of the Great Recession and bear market in 2009; and, of course, the 20% bomb in February 2020, as the coronavirus began to spread around the world and the economy tumbled into a recession. Last year was nothing to write home about either, with a 4.9% drop in the month. This time around, investors are concerned about high interest rates, the risk of recession, slowing earnings growth, and geopolitical tensions. Indeed, the S&P 500 fell into a bear market in 2022, though 2023 started with a positive January. Given the challenges in the marketplace (and the fact that the Federal Reserve is still raising rates), we suggest that equity investors continue to focus on well-managed companies with clean balance sheets.

Stocks were mostly higher in volatile trading on Thursday morning, led by the Energy and Consumer Discretionary sectors. GDP data was stronger than expected. In its advance estimate, the Commerce Department said that the U.S. economy expanded at a 2.9% annualized rate in 4Q, above the Bloomberg consensus forecast of 2.6% though down from 3.2% growth in 3Q. The Dow was flat, the S&P rose 0.3%, and the Nasdaq rose 0.7%. Crude oil rose nearly 2% to $81.50 per barrel, while gold fell $17 to $1926 per ounce.

Stocks fell on Monday morning, reversing course after Friday's rally, as investors awaited the Fed's policy announcement and the October employment report later this week. In China, a COVID lockdown forced the closure of Shanghai Disneyland. Discontent with COVID restrictions also prompted workers to flee a Foxconn plant in China, disrupting the production of iPhones at the plant. The Dow fell 0.1%, the S&P 0.3%, and the Nasdaq 0.7%. Crude oil traded near $87 per barrel, while gold fell $4 to $1641 per ounce.

Last week was the busiest of the quarter for earnings, with many sharp stock-price moves following above- or below-consensus results or changes in guidance. Through July 26, Refinitiv noted that 133 S&P 500 companies had reported earnings, with 76% beating expectations, above the long-term average of 66%. The blended (actual for those reporting and consensus for those still to report) growth rate is 6.2%, near the 5.6% expectation and indicating the "beats" have not been robust. But the sour mood coming into the quarter is being greeted with relief that profit shortfalls and lowered guidance are not rampant. Our analysts always look for companies that boost outlooks during earnings season. Raising guidance can be a catalyst for strong returns in the quarters ahead. Here is an initial list of BUY-rated companies in Argus coverage with raised guidance or increased outlooks during the 2Q22 EPS reporting season.

The dog days of summer may be perfect for a vacation at the beach, but investors don't always get to enjoy the month of August. Indeed, our analysis of monthly returns going back to 1980 indicates that August is ahead of only two other months (February and September) in terms of average return. Yes, there have been some hits. The month has a "win percentage" of 57%, and last year the S&P 500 increased 5.3% in August. But there have been some clunkers, including 1981 (-6%), 1990 (-9.4%), 1998 (-14.6%), 2001 (-6.4%), and 2015 (-6.3%). August generally is a quiet month on Wall Street. The second-quarter earnings reports are for the most part finished in July/early August. The IPO market, dormant already this year, often goes into a period of hibernation. Volume tends to be light, which is perfect for higher volatility. But this August, volatility is likely to remain high as economists debate whether the economy has entered recession after two consecutive quarters of GDP contraction. We continue to focus on quality companies (with strong earnings, balance sheets, and management teams) as the markets approach what has typically been a difficult two-month stretch.

Earnings season continues today, with reports from Exxon, Procter & Gamble, and Abbvie. On Thursday, Apple and Amazon reported better-than-expected results after the bell. The major indices rose strongly despite weaker-than-expected GDP data, as the Commerce Department reported that the U.S. economy contracted at a 0.9% pace in 2Q. On the employment front, first-time claims for state unemployment benefits fell to 256,000 for the week ended July 23, down from 261,000 a week earlier. The Dow rose 1.03%, the S&P 1.21%, and the Nasdaq 1.08%. Crude oil rose slightly to $97 per barrel, while gold rose 2% to $1773 per ounce.

Dividend income, an important element of total return, is often overlooked amid gyrations in the stock market. Between 1930 and 2012, dividend income accounted for 42% of the total return of the S&P 500, according to Hartford Funds. And that's just the average. In some decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for 15%-20% of returns. Still, in 2018, dividend payments softened the blow when most market indices declined as the Federal Reserve hiked rates. The pattern is being repeated in 2022 as well. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks.

Stocks fell sharply on Friday morning, reversing much of Thursday's rally. Amazon shares dropped more than 12% after the company posted a first-quarter loss and issued disappointing guidance for the current quarter. Apple shares also fell, despite strong fiscal 2Q results, after the company warned that supply-chain constraints would weigh on revenue in 3Q. The Dow fell 1.2%, the S&P 1.8%, and the Nasdaq 2.1%. Crude oil rose to $108 per barrel, while gold traded near $1915 per ounce.

We have studied the monthly, quarterly, and annual returns in the stock market since 1980. February is not one of the best months. On average, stocks rise only 0.2% in the month. August and September are also months that have generated weak average returns. There have been some strong Februarys, including 7% gains in 1986, 1991, and 1998, as well as a 5.5% surge in 2015. But there have been some bombs as well: a 6% drop in 1982, a 9% plunge in 2001 during the "dot-com" bust, and an 11% collapse near the bottom of the Great Recession and bear market in 2009. February 2020 was also a clunker, as the coronavirus began to spread around the world and the economy tumbled into a recession. This time around, investors are still concerned about COVID-19 and the economy, not to mention interest rates and geopolitical tensions. Indeed, the S&P 500 dropped 5% in January. Below the headlines, the fundamentals for stocks remain strong: the domestic economy is again growing, interest rates are relatively low, and corporate earnings are rebounding. We think sell-offs could represent buying opportunities in advance of recovering stocks later in the year.

Stocks gave up strong early gains on Thursday, ending in the red after initially rallying on much better-than-expected economic data. The Commerce Department said that the U.S. economy expanded at a 6.9% rate in 4Q, up strongly from the prior quarter and well above the consensus forecast. On the employment front, first-time jobless claims fell to 260,000, down from the prior week and slightly below consensus. Continuing claims rose to 1.675 million, up from the prior week and above the consensus of 1.655 million. The Dow fell 0.02%, the S&P 0.54%, and the Nasdaq 1.40%. Crude oil rose slightly to $87 per barrel, while gold fell $34 to $1795 per ounce.

Often overlooked amid gyrations in the stock market is dividend income, which is an important element of total return. Between 1930 and 2012, dividend income accounted for 42% of total return of the S&P 500, according to Hartford Funds. And that's just the average. In some decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for 15%-20% of returns. Still, in 2018, dividend payments softened the blow when most market indices declined as the Federal Reserve hiked rates. But not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks.

This edition features European banks; California utilities; traditional payment firms; and notes from Johnson & Johnson, Green Thumb Industries, and new coverage Lithium Americas.

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 were mainly flat on Monday morning as investors weighed more 3Q earnings reports and new U.S. manufacturing data. The Institute for Supply Management said that its index of national factory activity fell to 60.8 in October from 61.1 in September amid continued shortages of raw materials and supply-chain disruptions. The Reuters consensus had called for a decline to 60.5. The Dow rose 0.1%, the S&P was flat, and the Nasdaq rose 0.4%. Crude oil rose to more than $84 per barrel, while gold traded near $1796 per ounce.

Cash is no longer king for point-of-sale transactions, with only 12% market share compared to 38% for credit cards, 29% for debit cards, and 10% for the fast-growing digital wallet sector. We see a long secular road for growth, as digital payments are in the early stages of transition. Factors driving this trend include U.S. banks and the Federal Reserve encouraging digital over paper money; the pandemic, which has accelerated contactless payments as a safety step; and greater merchant acceptance for small dollar amounts. Importantly, the emerging generations (Millennials and Gen Z) embrace both mobile banking and digital payments. Forecasts call for digital-payment transaction value to grow at an 11% compound annual rate for the next five years and to reach $11 trillion from the 2020 level of $5.4 trillion. Several companies in the Argus Research fundamental universe of coverage are in position to take advantage of this opportunity. Each of the following stocks is rated BUY at Argus.

The Technology sector started slowly in 2021 as investors focused on value stocks. But the sector has come on strong in recent months (up 22% year-to-date) and now is outperforming the market (up 20.7%) as well as value sectors such as Consumer Staples (+8%), Utilities (+10%), Materials (+17%), and Industrials (+18%). The sector is the largest in the U.S. market and now accounts for more than 28% of the S&P 500. Over the long term, we expect the sector to benefit from pervasive digitization across the economy, greater acceptance of transformative technologies, and the development of the Internet of Things (IoT). Healthy company and sector fundamentals are also positive. For individual companies, these include high cash levels, low debt, and broad international business exposure. We have an Over-Weight ranking on the Tech sector and think investors should look to allocate up to 30% of their diversified portfolios to the group. Here is how we use our analysts' Tech sector ideas in our Focus List and Model Portfolios.

Stocks fell on Friday morning amid earnings from a range of major companies and new consumer spending data. The Commerce Department said that U.S. consumer spending rose 1.0% in June, up from a 0.1% decline in May and above the Reuters consensus forecast calling for 0.7% growth. The core personal consumption expenditures price index (PCE) rose 3.5% from the prior year in June, up from 3.4% in May but below the consensus forecast of 3.7%. Amazon shares fell more than 7%, despite strong earnings, on weaker-than-expected 2Q revenue and disappointing sales guidance for the current third quarter. The Dow fell 0.4%, the S&P 0.6%, and the Nasdaq 0.8%. Crude oil traded near $74 per barrel, while gold fell $11 to $1825 per ounce.

Often overlooked amid gyrations in the stock market is dividend income, which is an important element of total return. Between 1930 and 2012, dividend income accounted for 42% of total return of the S&P 500, according to Hartford Funds. And that's just the average. In some decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for 15%-20% of returns. Still, in 2018, dividend payments softened the blow when most market indices declined as the Federal Reserve hiked rates. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks.

Stocks rose modestly on Thursday morning, but gave up strong early gains amid a range of first-quarter earnings reports and new GDP and employment data. Investors also weighed President Biden's ambitious plans for new spending on families and education. The Commerce Department said that the U.S. economy expanded at a 6.4% annualized rate in the first quarter, above the Reuters consensus forecast of 6.1% and up from 4.3% growth in the fourth quarter. The Dow rose 0.1%, the S&P 0.3%, and the Nasdaq 0.1%. Crude oil rose 1.5% to $65 per barrel, while gold traded near $1768 per ounce.

Sustainable Impact Investing is gaining traction with the global investment community. In January 2020, BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. But the performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as the climate, hunger, poverty, disease, shelter, and workers' rights.

Monday was another one of those odd market days, as the rotation out of growth and into value continued in full force. Stocks, sectors, and industries that were left for dead for most of 2020 due to the pandemic have come roaring back, while former leaders that we thought were technically over-owned and over-loved continue to sell off.

Stocks were largely flat on Wednesday morning following earnings reports from Alphabet and Amazon and new employment data. Payroll provider ADP said that U.S. private employers added 174,000 jobs in January, well above the Reuters consensus forecast of 49,000 and up from a loss of 78,000 in December. The Dow fell 0.2%, the S&P was flat, and the Nasdaq rose 0.1%. Crude oil traded near $56 per barrel, while gold rose $3 to $1836 per ounce.

We have studied the monthly, quarterly and annual returns in the stock market since 1980. February is not one of the best months. On average, stocks rise only 0.1% in the month. Only the months of August and September have generated weaker average returns. There have been some strong Februarys, including 7% gains in 1986, 1991 and 1998, as well as a 5.5% surge in 2015. But there have been some bombs as well: a 6% drop in 1982, a 9% plunge in 2001 during the "dot-com" bust, and an 11% collapse near the bottom of the Great Recession and bear market in 2009. February 2020 was also a clunker, as the coronavirus began to spread around the world and the economy tumbled into a recession. This time around, investors are still concerned about COVID-19 and the economy, not to mention stock-market valuations and irregular trading activity. Below the headlines, the fundamentals for stocks remain strong: the domestic economy is again growing, interest rates are low and corporate earnings are poised to rebound. We think selloffs could represent buying opportunities in advance of recovering stocks later in the year.

We recently noted that the S&P 500 was about 30% above its 200-week average and above the upper weekly Bollinger Band (BB). Over the past couple of decades, the market has corrected when it was this extended. But in 1987 and during the '90s, the index was more than 50% above its 200-week.

The Technology sector has led the market recovery from the COVID-19 depths of March 2020. Through November 20, the sector was up 31% for the year, compared to a 10% gain for the S&P 500. The Tech sector is the largest in the U.S. market and now accounts for more than 27% of the S&P 500. Over the long term, we expect the Tech sector to benefit from pervasive digitization across the economy, greater acceptance of transformative technologies, and the development of the Internet of Things (IoT): Healthy company and sector fundamentals are also positive. For individual companies, these include high cash levels, low debt, and broad international business exposure. We have an Over-Weight ranking on the Tech sector and think investors should look to allocate up to 30% of their diversified portfolios to the group. Here is how we use our Tech sector ideas from our analysts in our Focus List and Model Portfolios.