A New Running Of The Bulls: Zacks July Market Strategy

This is an excerpt from John Blank’s latest July Market Strategy report. To access the full PDF, click here.

A New Bull Run?

Summer is peaking. The lousiest start for stocks in a New Year on record has reversed. The S&P500 finally broke out of a tight mid-2016 range. The S&P500 passed (in mid-July) its all-time high seen in June 2015.

This index technical is very important to bulls.

The 12-month forward look on earnings growth matters in mid-summer. Consensus sees +0.8% in annual S&P500 EPS growth for 2016 and a hockey stick +13.4% for 2017. In 2015, the S&P500 saw -1.1%. In 2014, it saw +4.8%.

The U.S. Economy Heats Up on Both Tracks

The latest June ISM surveys say it all. The U.S. economy has stayed on track.

(1) U.S. manufacturers grew in June at the fastest pace in 15 months, signaling a clear if modest uptrend after a bout of extended weakness.

(2) On top of that, economic activity in the non-manufacturing sector grew in June for the 77^th consecutive month.

(3) If it is my guess, the U.K. Brexit event will be a non-event for U.S. consumers.

(4) However, for firms and banks, Brexit will delay any inward investment into the U.K. by U.S. and non-U.S. groups alike.

The optimistic thing that can be noted about the post-Brexit situation in the U.K. is the government -- all of it, previous ones, future ones and the present one -- have time to sort this out. As an economist who thinks mightily of the U.K. and its long history, I hope they do. They can do this. They can emerge with a positive and forward-looking solution for their country.

To summarize the U.S. macro situation, a Fed economist duly noted:

“…While the average gain of 152,000 jobs per month represents a slowdown relative to the robust pace of the past few years, it is well above the level needed to support further improvement in overall labor market conditions, estimated to be in the range of 60,000 to 100,000 new jobs per month.”

Yes, the U.S. remains in expansion. Recent monthly labor market evidence emerged conclusive. The U.S. created 287K jobs in June, bouncing back after adding just 11K new jobs in May. June was the biggest job addition this year.

Zacks Sector/Industry/Company Telescope—and 3 Stock Picks

Sector Winners: Heath Care got back to the top of the sector pack in late June. The industry leader here became the Drug companies, particularly the Large Caps. The other sector surge was seen from the Info Tech sector, with the Electronics and Semiconductor industries leading the way.

Sector Losers: The big surprise sector loser was Consumer Discretionary. It fell all the way back to Very Unattractive. Downgrades hit the Consumer Staples and Materials sectors too. The industry exception was Steel, with new tariffs on China dumping. Financials also took a hit. Major banks struggle with the ever-continuing sink of interest rates -- now into negative territory on $11 trillion of bonds.

(1) Health Care went back to Very Attractive. Drugs led the way on the upgrade. Medical Care is still attractive. Medical Products rests at Market Weight.

Zacks #1 Rank (Strong Buy) stock: Align Technology Inc. ( (NASDAQ:ALGN) )

Align Technology Inc. designs, manufactures and markets the Invisalign System, a proprietary method for treating malocclusion(a misalignment or incorrect relation between the teeth of two dental arches when they approach each other as jaws close).The System corrects malocclusion using a series of clear, removable appliances that gently move teeth to a desired final position.

(2) Info Tech rose all the way to Very Attractive. Electronics and Semiconductors led the way back.

Zacks #2 Rank (Buy) stock: Mettler-Toledo ( (NYSE:MTD) )

Mettler-Toledo is the world's largest manufacturer and marketer of weighing instruments for use in laboratory, industrial and food retailing applications

(3) Consumer Staples fell back one notch to Attractive. Food/Drug Retail, and Misc. Staples, & Tobacco all look good again. Food fell back to Market.

Zacks #2 Rank (Buy) stock: Helen of Troy ( (NASDAQ:HELE) )

Helen of Troy Limited is a leading designer, producer and marketer of brand name consumer products. The Company's products include hair dryers, curling irons, hair setters, women's shavers, brushes, combs, hair accessories, home hair clippers, mirrors, foot baths, body massagers, depilatories and paraffin baths.

(4) Materials fell back one notch to Attractive. The best is Containers & Glass and Steel. Metals-Non-Ferrous look better, as gold and silver prices rise.

(5) Telcos stayed a Market Weight.

(6) Utilities stayed a Market Weight.

(7) Energy stayed a Market Weight. The best are the Pipelines. Drillers remain in the tank, along with Oil-Misc.

(8) Industrials fell one notch to Unattractive. Machinery-Electrical is the sole strong industry. Railroads, Industrial Products & Services, Machinery, Construction-Building Services, and Airlines all slipped.

(9) Financials stayed Unattractive. Major Banks are struggling with negative rates. Investment Banking & Brokering sees a Brexit stall in deals. The best industry niche looks to be Real Estate.

(10) Consumer Discretionary fell to Very Unattractive. Auto and Consumer Electronics industries look poor. Apparel and Leisure Services also took a hit.

This has been an excerpt from John Blank’s latest July Market Strategy report. To access the full PDF, click here.