Quant Ratings Updated on 88 Stocks Dear Reader, This week, I’m reminded of the classic 1980 comedy movie “Airplane!,” which is a parody of the disaster movies that came out in the 70s.
When the passengers and crew of an airliner come down with food poisoning, a rogue war veteran pilot is forced to take control of the plane and land it. As the situation goes from bad to worse, there’s a guy who’s supposed to be helping manage the situation in the control tower. When he takes charge, he utters the phrase, “Looks like I picked the wrong week to quit smoking,” and then lights up a cigarette.
In what becomes a recurring joke throughout the movie, the nasty habits he is “quitting” become progressively worse... “Looks like I picked the wrong week to quit drinking,” and he takes a drink, and then so on...
I bring this up because this might be “one of those weeks” in the stock market.
To start with, the market woke up on the wrong side of the bed this morning after the long holiday weekend. The S&P 500 finished 2.1% lower today, while the Dow is down roughly 600 points, or about 1.5%. But the NASDAQ got the worst of it, losing nearly 3.3%.
Well, welcome to September, folks.
I know you may be hoping that with the long Labor Day weekend marking the unofficial end of summer, the bumpiness we’ve had in the market recently is also in the rearview mirror. Unfortunately, this may not be the case just yet.
As I’ve discussed recently, the reality is that with much of Wall Street still on vacation, volume is light, and that tends to make September a bad month for stocks.
Just consider the past four Septembers: the S&P 500 has dropped 3.9%, 4.8%, 9.3% and 4.9%, respectively. And this isn’t a recent trend, either. It’s the worst month for stocks going all the way back to 1950. So, we may be heading into another bumpy month.
But it’s not just seasonality and light volume that are leading stocks lower. So, in today’s Market 360, we will talk about what else is on investor’s minds that is weighing on the market right now. Then I’ll share a handful of reasons you shouldn’t be too discouraged for the upcoming month.
What’s Dragging the Markets Down This Week In addition to seasonality, investors are growing worried about the state of the overall economy. The Institute for Supply Management (ISM) said this morning that its manufacturing PMI rose to 47.2 in August from 46.8 in July. That’s the lowest reading since November and marks five straight months of contraction (readings below 50).
Looking ahead, investors are also awaiting the August jobs report, which is due on Friday. Economists are expecting it to show 162,000 jobs created in August and for the unemployment rate to tick down to 4.2%.
Now, if you recall, the unemployment rate was 3.4% as recently as April 2023. But it has since crept up to 4.3%.
This is important because the Personal Consumption Expenditures (PCE) index – the Federal Reserve’s favorite inflation indicator – showed that inflation continues to cool, with core PCE (which excludes food and energy) rising 0.2% in July and climbing 2.6% in the past 12 months.
So, while inflation continues to cool, the job market is becoming more of a concern. Right now, a 0.25% key interest rate cut is baked in the cake for the Federal Reserve’s next meeting on September 18, although some folks are hoping for a 0.5% cut. And if we get a shock employment report on Friday, they just might get it. This Week’s Ratings Changes
To help you prepare for this shortened but potentially volatile week in the market, I took a fresh look at the latest institutional buying pressure and each company’s financial health. I decided to revise my Portfolio Grader recommendation for 88 big blue chips. Of these 88 stocks… - Fifteen stocks were upgraded from a Buy (B-rating) to a Strong Buy (A-rating).
- Twenty-three stocks were upgraded from a Hold (C-rating) to a Buy (B-rating).
- Seventeen stocks were upgraded from a Sell (D-rating) to a Hold.
- Sixteen stocks were downgraded from a Buy to a Hold.
- Thirteen stocks were downgraded from a Hold to a Sell.
- And four stocks were downgraded from a Sell to a Strong Sell (F-rating).
I’ve listed the first 10 stocks rated as Strong Buys below, but you can find a more comprehensive list – including all 88 stocks’ Fundamental and Quantitative Grades – here. Chances are that you have at least one of these stocks in your portfolio, so you may want to give this list a skim and adjust accordingly.
| CHRW | C.H. Robinson Worldwide, Inc. | A | | CI | Cigna Group | A | | CNC | Centene Corporation | A | | DFS | Discover Financial Services | A | | EIX | Edison International | A | | FOX | Fox Corporation Class B | A | | GIS | General Mills, Inc. | A | | HLN | Haleon PLC Sponsored ADR | A | | IBKR | Interactive Brokers Group, Inc. Class A | A | | JPM | JPMorgan Chase & Co. | A | Why You Should Stay Optimistic Now, I don’t want you to be discouraged... There are a few reasons for optimism this September.
First, as I mentioned, we can expect a rate cut at the Fed’s policy meeting on September 18. But the second factor is the updated “dot plot” at this meeting, which will give us more clarity on how many rate cuts we can expect going forward. The current consensus calls for at least two more after the September cut.
Third, the presidential debate between Donald Trump and Kamala Harris on September 10 will be pivotal, and it should help eliminate a lot of political uncertainty.
And finally, the second half of September is historically positive for the stock market, primarily due to quarter-end window dressing. During this time, portfolio and fund managers alike need to shore up their portfolios prior to the quarter end, and they’ll make these portfolios “pretty” by loading up on fundamentally superior stocks.
So, while there are likely a few more bumpy weeks ahead, the dust should settle by the end of the month, and we’ll be ready for the seasonally strong time of the year.
In the meantime, the best defense is a good offense. And that is why you need to make sure your portfolio is chock full of fundamentally superior stocks, too – like the ones I recommend in Growth Investor.
The fact is my Growth Investor stocks beat the S&P 500 by almost 2 to 1 in August. And they sport average annual sales growth of 28%, 498.7% average annual earnings growth, 28.3% average earnings surprises and 57% average annual dividend growth.
Click here to find out more about Growth Investor now.
(Already a Growth Investor subscriber? Go here to log in to the members-only website.) Sincerely, |
| The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: Interactive Brokers Group, Inc. Class A (IBKR) |
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