June Market Strategy: U.S. Expansion Carries On

The following is an excerpt from John Blank’s June Market Strategy. To access the full PDF, click here.

The title of this Zacks Market Strategy piece openly hints at my bull thesis: The U.S. expansion carries on. Following that expansion tune -- the S&P 500.

June Strategy Update

We were trading around 2100 on the S&P 500 in early June. The S&P 500 breaks thru its high at 2135. Weak Q1-16 U.S earnings can only be ignored via a summer 2016 look ahead to 2017. Earnings and revenue growth are not expected to return until 2H 2016.

Yes, the U.S. remains in expansion. Recent monthly labor market evidence was NOT conclusive, however.

The U.S. created just +38K new jobs in May. The number of new jobs was the smallest the economy created since the fall of 2010. Consensus had pegged an increase of +155K nonfarm jobs.

Given the screwy May jobs report, three caveats ask for inclusion:

• Jobs figures were likely suppressed by a strike of about 35,000 Verizon workers. That began in late April and stretched through May.
• A bout of “unusually cool” and “very wet” weather hit certain U.S. regions. This may have also hit job growth estimates.
• Consensus had expected a “weak reading” on employment at retailers, following a mild decline in April. This was payback for gains that averaged more than +50K a month in the first quarter of 2016.
• In a twist going the other way, the U.S. unemployment fell to 4.7% rate in May after having ticked back up to 5.0% in March 2016. That’s frictional unemployment.

Zacks June Sector/Industry/Company Telescope

The U.S. consumer did show up strongly in late May macro data. It clearly helped analysts to upgrade earnings estimates for consumer sectors. In sum, Consumer Staples and Consumer Discretionary are back to the top of the S&P 500 sector pack.

Materials – another Very Attractive sector – were led by industries that supply consumers.

Interestingly, deep defensives got upgraded to Market Weight. Financials are at the back of the heap. That shows the super low interest rate environment keeps a bid on dividend paying defensives and off rate earning banks.

(1) Consumer Staples upgraded to Very Attractive. The Food and Soaps & Cosmetics Industries lead the way. Tobacco, Food/Drug Retail, and Misc. Staples all look good too.

Zacks #2 Rank (BUY) Company: Church & Dwight ( (NYSE:CHD) )

Church & Dwight Co, Inc. is the world's leading producer of sodium bicarbonate (baking soda), a versatile chemical. They sell their products, primarily under the ARM & HAMMER trademark, to consumers through supermarkets, drug stores and mass merchandisers and to industrial customers/distributors.

(2) Materials keep on at Very Attractive. The best is Chemicals and Metals-non-Ferrous, Paper, and Containers & Glass. Those are tied to consumption.

Zacks #1 Rank (STRONG BUY) Company: BASF ( (OTC:BASFY) )

BASF is the world's leading chemical company. Its portfolio ranges from chemicals, plastics, performance products and agricultural products to oil and gas.

(3) Consumer Discretionary upgraded to Attractive. Industry leaders are the big cyclicals of Home Furnishing-Appliances and Autos/Tires/Trucks. Publishing and Other Consumer Discretionary also look good.

Zacks #1 Ranked (STRONG BUY) Company: Autoliv (NYSE:ALV) )

Autoliv Inc. is a worldwide leader in automotive safety, a pioneer in both seatbelts and airbags, and a technology leader with the widest product offering for automotive safety. All the leading automobile manufacturers in the world are customers.

(4) Health Care falls back to Attractive. Medical Care is best. Drugs and Medical Services are Market Weight.

(5) Industrials fell one notch to Attractive. Metal Fabricators, Business Services, Railroads, and Electrical Machinery lead the way here.

(6) Telcos are a Market Weight.

(7) Utilities are a Market Weight.

(8) Energy falls back to a Market Weight. Oil & Gas Integrated looks best. Drillers remain in the tank, along with Oil-Misc.

(9) Info Tech fell to a Market Weight. The best is Electronics. The worst is Computer-Office equipment.

(10) Financials are still Unattractive. The best is Real Estate and Banks-Major and Banks & Thrifts. The worst is Investment Funds.

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