The Key to 2022 Bullishness: Zacks DEC Market Strategy

The following is an excerpt from Zacks Chief Strategist John Blank’s full Dec Market Strategy report To access the full PDF, click here

 

Want the key to 2022 bullishness?

This will be found here: Can U.S. stock indices continue to outperform underlying earnings growth fundamentals, absent monthly Fed bond-buying?

The ECB won’t likely be out of the bond-buying game in 2022.

Keep that in mind.

I. Fair Value Calls Rely on Fed Money Printing

My top-down stock strategist call — using a Forward 12-Month P/E ratio of 18 and Zacks 2022 EPS data — has been to see the S&P500 index end 2021 at 4,350.

 

• On December 1st, 2021 the S&P500 closed at 4,513
• Any 2021 S&P500 end-valuation difference is likely a Fed ‘money printing’ effect

Did this Fed ‘money printing’ effect display itself at YE 2020? I think the answer is YES.

 

• Last year, very bullish top-down Wall Street strategists called for the S&P500 to end 2020 trading at 3,450
• The S&P500 benchmark ended 2020 at 3,756

The latest 2022 “bottoms-up” call?

The S&P500 reaches 5,190.9 in 12 months’ time.

II. Firms to Keep Building on Single-Digit EPS and Revenue Growth in 2022, 2023

For Q4-2021, S&P500 EPS growth should be +19.1%; revenue should grow +11.2%.

For Q1-2022, S&P500 EPS growth should be +4.3%; revenue should grow +8.1%.

For Q2-2022, S&P500 EPS growth should be +0.6%; revenue should grow +5.9%.

Zacks expects +8.1% y/y EPS growth in 2022 for the S&P500 companies (on Dec. 1st).

Zacks expects +9.9% y/y EPS growth in 2023 for the same S&P500 companies.

 

• Our S&P500 data over the next three coming quarters show revenue growth holding up better than EPS growth
• That is likely the effect of rising wage and input cost pressure

III. Zacks December Sector/Industry/Company Telescope

The DEC Zacks Rank system showed only 2 Very Attractive sectors; Info Tech and Energy. Though Financials looked Attractive.

Industrials fell to Market Weight this month. Pollution Control (likely the Biden clean energy and climate infrastructure elements) remained the top industry here.

Health Care was a Market Weight. Medical Products looked best. A surprise industry leader. Perhaps Biden health spending effects?

Communication Services and Utilities came with an Unattractive rating, a typical spot for defensives.

Both the Consumer Staples and Consumer Discretionary sector rose a notch to Unattractive ratings. The Delta and Omicron variants and high CPI have definably hit consumer confidence.

Materials stayed at Very Unattractive.

(1) Info Tech stayed at Very Attractive. Semis (with a global supply shortage), Computer Software-Services and Electronics stayed at the top, again, and in that order.

Zacks #1 Rank (STRONG BUY): Hewlett Packard Enterprise (HPE - Free Report)

(2) Energy

remained a Very Attractive sector. Oil E&P, Oil Integrated, Energy-Alternates, and Oil-Misc. looked the very best, once again.

Zacks #1 Rank (STRONG BUY): Chevron (CVX - Free Report)

(3) Financials

fell back to Attractive from Very Attractive. Investment Funds, Investment Banking, and Real Estate looked good again. Lower reserves, more profit from higher stocks and M&A deals.

Zacks #1 Rank (STRONG BUY): The Blackstone Group (BX - Free Report)

(4) Industrials

fell to Market Weight from Attractive. Pollution Control (Biden infrastructure?) Metal Fabricating and Railroads, were the top industries, again.

(5) Health Care stayed at Market Weight. Medical Products looked best.

(6) Utilities fell to Unattractive from Market Weight. Utilities-Water Supply was the best.

(7) Communications Services stayed Unattractive.

(8) Consumer Discretionary rose to Unattractive from Very Unattractive. Autos/Tires/Trucks, Home Furnishing-Appliances and Consumer Electronics were strong and show wealth effects.

(9) Consumer Staples rose to Unattractive from Very Unattractive. Agri-business (commodity price boom) looked best again.

(10) Materials stayed at Very Unattractive. No industry held up. Building Products looked best.

Conclusion

I close matters up with YTD S&P500 sector returns, to Nov. 27th, 2021.

 

The latest Zacks top-down assessments is clear and consistent with these returns…

Therefore,

• Consider the Energy sector, and think Chevron (CVX - Free Report)
• Consider the Finance sector, and think The Blackstone Group (BX - Free Report)
• Consider the Tech sector, and think Hewlett Packard Enterprise (HPE - Free Report)

 

Funny how that meshed, right?

That’s it for me!

Happy trading and investing,

John Blank

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