October - November - Stock - Market - Outlook - Report - Cta 2

Stock Market
Outlook Report
INVESTMENT MANAGEMENT
October/November 2021
John J. Blank, Ph.D.
Zacks Investment Management

Born from Research, Built for Performance
IN THIS GUIDE:
Zacks October View On Equity Markets 2
U.S. Macro Outlook From San Fran Fed 5
Zacks Forecasts At A Glance 8

ZRS Chart Of The Month 31
Zacks Rank S&P500 Sector Picks 32
Zacks Rank October Industry Tables 33
October Sell-Side And Buy-Side Consensus 37
STOCK MARKET OUTLOOK
1. Zacks October View on Equity Markets

U.S. Markets
According to the latest from Our World in Data, the number of confirmed COVID deaths in the USA is now over
700,000. Further, the count of USA COVID deaths in 2021 is about as high as in 2020.
Cumulative Confirmed COVID-19 Deaths in the USA
The USA population has experienced a profound loss of life. A loss of life, to a virus, in a short time. A mass health
event not ever seen, in terms of 18-month cumulative deaths.
In response, those still living are actually acting rationally on this event. They are quitting their jobs at a historic rate.
USA Quit Rates: Total Nonfarm (as a Ratio of the labor force)
Step back.
This makes much more sense than you would initially think. The USA working population is responding rationally to a
major loss of USA life. People are making a mass adjustment -- to live and work better, with more balance and mean-
ing.
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2. U.S. Macro Outlook- San Francisco Fed “Fed Views”
Andrew Foerster, senior research advisor at the Fed of San Francisco, stated his views on the current economy and the
outlook as of September 9th, 2021.
The economy is rebounding with strong growth, as it continues to recover from the recessionary effects of the
pandemic. However, high transmission of the Delta variant and low vaccination rates in some areas of the country
pose a downside risk to economic growth.
GDP in the second quarter of 2021 exceeded 12% on a year-over-year basis, the highest reading since 1950. The
base effects from the very low levels of GDP during the depths of the pandemic in early 2020 play a role in this high
reading, but growth on a quarterly basis in the first half of 2021 has been robust.
The level of GDP now exceeds its pre-pandemic high reached at the end of 2019. While this suggests the economy
has made up for the drop in output during the pandemic, GDP still sits below the trend implied by average growth in
the pre-pandemic years. Continued above-trend growth is expected to narrow this gap in coming quarters.
Supply chain disruptions and bottlenecks have exacerbated the price pressures generated by strong demand.
Personal consumption expenditures (PCE) inflation was 4.2% in the 12 months through July. Core PCE inflation over
the same horizon was 3.6%. Inflation’s rise above the Federal Open Market Committee’s 2% target is expected to be
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transitory, with price increases moderating as the economy continues to adjust to the resumption of activity.
Used vehicles is a relatively small sector. Nonetheless, it has added atypically large contributions to overall
inflation readings over the last several months. From 2015 to 2019, this sector averaged a negative contribution to
PCE inflation because of generally falling used car prices. However, supply chain disruptions in computer chip manu-
facturing that began early in the pandemic have limited new vehicle manufacturing. As a result, consumers shifted
demand toward used vehicles, leading to monthly double digit price increases.
The last several months have thus seen used vehicles contribute around 0.6 percentage points to overall inflation,
though the most recent data suggest this dynamic is starting to abate. While prices for used vehicles could remain
high, if price increases cease, this sector will stop contributing to inflation. If price increases reverse, a negative contri-
bution is possible, putting downward pressure on inflation.
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The labor market continues to improve, but at an uneven pace. Concerns about the Delta variant slowed hiring
in August relative to June and July, as payrolls expanded by a modest 235,000 jobs. Both the leisure and hospitality
and retail trade industries saw tepid job growth, suggesting the increase in cases of the virus is a major factor for the
slowdown.
Despite the slowing growth in hiring, the unemployment rate in August fell to 5.2%. This measure however sends
an incomplete signal about the extent of the labor market recovery. A number of key groups — including parents who
have temporarily left the labor market due to childcare concerns — are not officially counted as unemployed. The
employment-population ratio still sits 2.6 percentage points below its pre-pandemic high.
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Total U.S. employment is still about 5.7 million jobs below its pre-pandemic peak. This aggregate figure masks dif-
ferent employment dynamics across goods-producing and services sectors as well as across states.
The substantial decline in employment seen in April 2020 hit the services industries relatively harder than the
goods-producing industries, as demand for many in-person services declined because of mandated social-distancing
restrictions associated with virus concerns. Goods-producing employment fell by a little over 13% relative to January
2020, while services employment fell by 3 percentage points more. Since that initial decline, services employment has
recovered at a relatively faster rate as social-distancing limits have been relaxed, and the gap between goods-produc-
ing and services employment has narrowed.
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Employment patterns have varied substantially across the United States during the pandemic. Differences in the
composition of sectors play a major role in how some state economies have fared. Goods-producing employment in
Michigan initially fell by over 40% due to particularly large cutbacks in manufacturing jobs, but subsequently recov-
ered toward the national average. Goods-producing employment in Wyoming remains particularly depressed because
its mining and construction sectors were already contracting but have worsened since the onset of the pandemic.
On the services employment side, Hawaii has an exceptionally high reliance on its leisure and hospitality sector.
With lower tourism, that sector has dragged on employment, leading Hawaii to be the slowest state to recover services
employment. Utah has been a relatively strong performer in both goods-producing and services employment, led by
strength in construction and professional and business services.
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3. Zacks Forecasts at a Glance

Top-Down S&P500 Yearend 2021 Targets
To Oct. 1st. the S&P500 YTD gain was +14.68%. To Sept. 1st, the S&P500 YTD gain was +20.7%. The bull trend appears
fully intact. But a period of fall volatility did arrive. September is usually worrisome, and it played out true to form, this
year.
Across last year, the S&P500 annual gain was +18.4%. A majority of that gain came in the last two months of the year.
That was an above average annual S&P500 return.
Next, a table shows Zacks’ updated views on 2021 and 2022 S&P500 earnings and “fair value” index calculations.
Fair Value at 5-yr Actual YE price of

“Bottom-up” S&P500 average forward 12M S&P500 and Zacks
Year Operating Earnings PE of 17.6 S&P500 Targets
2019 $163.12 2,936 2,954
2020 $140.46 2,528 3,668
2021 (est) $198.77 3,578 4,200
2022 (est) $217.00 3,906 3,850 to 4,600
Zacks Price Target for

“Bottom-up” S&P500 Zacks Call for S&P500 S&P500 proxied with a
Year Operating Earnings Operating Earnings 5-yr Avg. PE of 18
2019 $163.12 $163.12
2020 $140.46 $140.46
2021 (est) $198.77 $197.48 3,896
2022 (est) $217.00 $216.44 4,320
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As for underlying U.S. macro fundamentals? They are softening. The ADP private payroll data for August was up +374K,
after a +326K print in July, and +741K in June.
Another ADP chart shows a related point. U.S. labor market strength reached all sizes of firms. Really small 1-19 em-
ployee firms are nearly back to their prior index highs. 20-49 person firm employment has surged ahead of really big
1000+ employee firms.
It is small firms (but not small cap stocks?) that are doing the relatively heavier lifting.
The Federal nonfarm payroll addition came in at +235K in August, and showed an upwardly revised +962K in July
(+24K) and an upwardly revised +1.035K in June (+110K). Clearly, given the latest revisions, June or July marks peak
U.S. hiring.
To see how these macro fundamental improvements got reflected in equity returns, let’s consult a timeline showing
the Russell 2000 small cap index outperformance.
Across a 2018 to 2021 timeline, blue shows the Russell 2000 (RUT) index value, in absolute terms on the RHS. The
orange shows the Russell 2000’s index value, relative to the S&P 500 on the LHS.
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Russell 2000 (blue) &

Russell 2000 relative to S&P 500 (orange)
Jully 31, 2018 to June 30, 2021
Source: Zacks Research System (ZRS), August 5th, 2021
The insights?
First, small cap Russell stocks remain undervalued relative to the S&P 500 by -11.7%.
Second, small caps had outperformed from late Q4-20; after Joe Biden won the U.S. Presidential election, until a few
weeks after his Presidential inauguration.
The last 20 weeks or so, that run has consolidated.
Now, look ahead 12 months. In the fall, expect a stronger recovery by Russell 2000 stocks to resume. The current an-
nual return is +37.8%. The average return is +12.0%.
Referencing underlying Zacks earnings data, major U.S. publicly-listed firms should keep building up EPS and
Revenue growth in 2022.
For Q1-2022, the earnings growth rate for the S&P500 should be +6.9%.
For Q2-2022 the EPS growth rate should be +5.0%.
The estimated (year on year) EPS growth rate for the S&P500 for 2021 is +42.7%. This is over 4X the 10-year average
(annual) EPS growth rate of +10.0%. But includes special ‘base-effects.’
If +42.7% is the actual growth rate for 2021, it will mark the largest annual EPS growth rate for the index since 2010
(+39.6%). That is impressive.
Q3 and Q4 2021 earnings growth rates will be +26.1% and +20.2%. Above trend too.
Why unusually large S&P500 earnings growth rates?
First, analysts were too aggressive in their downward revisions to EPS estimates during the first half of 2020 at the
height of the COVID-19 lockdowns.
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Second, the outlook for overall nominal U.S. macro growth shows up in double digits.
Third, strong commodity prices and oil prices have driven up value stock EPS revisions.
Finally, companies in the S&P500 have become more optimistic on their EPS guidance.
How did stock markets price this in?
Next are September 30th, 2021 YTD S&P500 sector returns:
There are 5 cyclical sector leaders, outperforming a +14.7% YTD S&P500 return:
• Energy $XLE: +38.4%

• Financials $XLF: +27.4%
• Real Estate $XLRE: +22.0%
• Communication Services $XLC: +20.8%
• Info Tech $XLK: +14.5%
And 6 sector laggards:
• Health Care $XLV: +12.1%

• Industrials $XLI: +10.3%
• Consumer Discretionary $XLY: +9.8%
• Materials $XLB: +9.0%
• Consumer Staples $XLP: +2.6%
• Utilities $XLU: +1.7%
October Zacks Sector Ranks showed top-down investors a pro-cyclical order:
• Info Tech, Industrials, and Financials led

• Consumer Discretionary, Energy, Health Care were Attractive
• Consumer Staples, Telcos and Utilities were at Market Weight
• Materials fell precipitously to Very Unattractive
This remains a cyclical set-up, in terms of sectors.
In this era of more mobility inside the USA, global Energy oil price fundamentals are still managed by OPEC+. That
price was marked at $77 a WTI barrel on Oct. 4th.
Super strong prints in global manufacturing PMIs?
They continue to make a bull case for Energy, Info Tech, and Industrials.
What of the COVID situation?
According to the NY Times Vaccination Tracker: More than 6.0 billion vaccine doses have been administered worldwide
on Sept. 21st, equal to 70 doses for every 100 people.
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Source: Publicly available. Our World in Data, to Sept. 30, 2021
There is already a stark gap, between vaccination programs in different countries, as this country table
shows.
The B.1.617.2 (aka the Delta variant) was classified as a Variant of Concern (VOC) because it spreads from
person to person more easily than other variants and may cause more severe disease.
Click the link to see the latest U.S. case rate data.
US COVID 7-day Case Rate per 100,000 by State
Setting U.S. Returns Expectations for Q3-2021 and Beyond

To Oct. 1st, 2021, U.S. mobility remains as good as this summer, albeit with setbacks in the South from the
Delta variant. Fears about COVID-19 go down with caseloads and hospitalizations. There are signs of a casel-
oad top in the South, in specific states.
Herd immunity (hopefully) can be achieved, sooner, in other parts of the country.
Now, factor in unbelievable amounts of stimulus being applied to the U.S. and to major global economies.
What happens to S&P500 returns in 2H-21 and 2022 can look like annual stock market bull runs in year’s
past.
Mr. Market always rules. He sees the money printing.
Look back at S&P500 sector returns across the 11-year-long bull market.
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For bears, at the moment, the latest Zacks earnings tables (below) now has three S&P500 sector with weak Q3-21 earn-
ings: Retail, Consumer Staples & Utilities.
For bulls, eight Zacks S&P500 sectors show double-digit Q3-21 earnings outlooks:
• Basic Materials (+141.3%)

• Industrial Products (+26.1%)
• Construction (+21.2%)
• Technology (+21.2%)
• Finance (+19.5%)
• Aerospace (+14.5%)
• Medical (+14.4%)
• Conglomerates (+11.4%)
For rangebound sentiment, three S&P500 sector looks stagnant (likely tied to weakness in consumer spending). There
are always traditional defensives, in other sectors too.
• Retail/Wholesale (+1.0%)
• Utilities (-0.6%)
• Consumer Staples (-0.5%)
No doubt, after vaccination, the Fed is the key factor propelling stocks.
Traders will look ahead to 2022 now. Like they always do. They will keep massive $8.4T in Fed liquidity front-and-cen-
ter. Then, the $1.2T in the bipartisan Infrastructure plan.
And then, perhaps, some of the $3.5 trillion spending planned by the proposals in the “American Families Plan” pas-
ses.
It will NOT be a simplistic case of Q3 and Q4 2021 earnings and revenue “Beats” that propel stocks.
What Produces 2022 Optimism?
First, bulls celebrate vaccination, 95% efficacy rates, and booster shots. Along with marked improvement in testing
and treatment for this novel virus.
Second, with a new experienced U.S. administration, Public Health advisory and cooperation improved, internally
across states and externally across countries.
Third, we have an uber-dovish Fed. We have dovish central banks outside the USA.
The U.S. Housing market, is on fire. Note the rise in New Single Family Home Sales, the Median Sale Prices of Houses
Sold, and the low number of Houses for Sale.
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U.S. Housing Dashboard (2017 to 2021)
Source: Zacks Research System, Oct. 4th, 2021
Fourth, we had $908 billion in spending added to U.S. unemployment paychecks, PPP loans to small
businesses, and a mélange of other COVID needs. Then, the $1.9T in new “American Rescue Plan”
spending showed up. There is surely more to factor in.
Fifth, 2022 offers the stock trader solid fundamental growth; with upgrades to earnings and revenue
growth rates.
• Latest estimates show 2022 S&P500 EPS growth of +9.6% and its annual revenue growth rate
at +6.6%.
• 2021 should close with snapback S&P500 EPS growth of +42.7% and annual revenue growth
of +13.6%.
In hindsight, look at the last 3 years:
• In 2020, the S&P500 showed us -13.2% EPS growth and -1.7% revenue growth.
• In 2019, the S&P500 got pumped higher by Fed rate cuts and Fed repo buying. The China
trade war was a bust, and the Fed knew it.
• In 2018, the S&P500’s +20% earnings growth and +9% revenue growth were a struggle for risk
takers. The markets spooked about overheating and higher interest rates. The corporate tax
cuts were seen as a one-off event.
Sixth, recognize: Entering the virus crisis, U.S. corporates maintained stronger revenue growth and
higher profit margins vis-à-vis the rest of the advanced world.
Seventh, key U.S. sector fundamentals continue to benefit from ongoing catalysts --
• Remote working accelerated demand for chips, certain software, and cloud-based, or in-situ,
computer storage support.
• Business equipment & structures investment has recovered. CEOs and CFOs are in a decent
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place. They are optimistic.

• Semiconductor IoT (Internet of Things) developments hold attractive implications.
• Aging demographics builds Medical Care demand. Ditto health-exchange and health insurance ex-
pansions.
How to reconcile -13.2% U.S. earnings growth resulting for 2020 earnings? This stock market is not going to
slump back to that soon!
• Q4-2021 shows EPS growth of +20.2% and revenue growth of +10.5%

In short, traders see positive quarterly earnings growth rates. So do analysts.
The forward 12-month P/E rests at 20.1. Yes. That P/E metric is much worse than the 5-year average at 18.3
and the 10-year average at 16.4. But Mr. Market (full of retail and momentum traders) can play a bullish
share price trend, not the current poor data.
Many analysts were too pessimistic. On Wall Street, it pays to keep your head down.
The COVID story? Delta variant cases are now rolling over, off a peak. Mu and other variants don’t seem as
powerful.
What’s Alive for 2022 Pessimists?
Don’t ignore consequences. A dramatic shutdown earnings plunge hit suddenly in Q2-20. Federal debt ac-
cumulation and money printing then reached unprecedented levels.
From here, if a post-Fed taper stock and housing price bubble pops, worries would dramatically increase
about financial losses reeling out of office and retail America, into the banks. Loan losses can beat up share
and bond markets even more.
A rise in fears (founded and unfounded) would surely lead to an even deeper U.S. share pullback.
Both High Yield and Investment grade credit may blow out without the Fed backstop.
Other big risks lie hidden. Inside a rosy 2017 to 2019 Pre COVID corporate and real estate lending environ-
ment, without being widely appreciated.
Don’t forget this: Too much cheap money for too long. Years and years of it.
A surge in Bitcoin prices holds speculative excess too. Tesla stock price continue to amaze the laws of grav-
ity.
Is It Time to Buy U.S. Stocks in Early October?
I am neutral. The S&P500 is back down to 4.320, which is my ‘fair value YE target. Vaccine mandates may
produce U.S. herd immunity. But a 20.1 forward P/E stays rich. Good fundamental news and the Fed taper
outlook is richly priced in.
Zacks strategists (including me) stay bullish. The S&P500 can hold onto 4,320 at yearend 2021.
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Bulls rosily envision 2022 U.S. and global EPS performance holding up:
Here’s the mantra — Don’t fight the Fed. And don’t expect a tapering Fed to continue if the
bubble popping gets out of control.
Don’t focus just on U.S. liquidity. Don’t fight the ECB in Europe, the BoE in the U.K., the BoJ
in Japan, and the People’s Bank of China (PBoC).
All major central bank players can again bring out the “anything goes” monetary policy
artillery.
Bears?
• Bubbles of euphoria pop as the Fed begins its taper in November 2021.
• Then, the COVID nightmare brewed up by Delta. More COVID mutations are out
there.
Bears see a -10% to -30% downside, with spreading deep growth negatives
This is due to an unforeseen swath bankruptcies and loan and stock margin losses.
There are negative side effects to money printing too. Income inequality is growing.
Consult the chart next…
• The top 1% now own 32% of the U.S. total Net Worth
• The bottom 50% own 2.0%
A widening income inequality gap is a worldwide phenomenon, fueled by central bank in-
tervention -- whether Fed driven or central bank driven outside the USA.
The Fed insists their policies absolutely do not add to inequality.
But if you do not own stocks, you do not benefit from the broad increase in sharp prices,
achieved by cheap money.
Range-bound sages will mostly note broad and deep bond market sedation.
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“TINA” is short for There is No Alternative. Domestically, the 10-year U.S. Treasury rate is still
very low at 1.30%. U.S. consumer inflation still likely stays under the Fed’s statutory target.
Supply bottlenecks, buying euphoria, income from the $908B U.S. CARES act and a $1.9T
“American Rescue Plan” follow-on act did cause consumer price surges. But the combined
forces have not forced the Fed’s rate hand.
Ditto a number of European packages, Japanese fiscal support, South Korea’s interventions,
etc.
What of U.S. GDP Growth?
The Atlanta Fed Nowcast for Q3-21 has +3.2% GDP growth expansion September 27th.
• Q2-21 2nd run data was up +6.6%

• Q1-21 final data was up +6.3%
• Q4-20 was up +4.3%
• Q3-20 was down -33.1%
• Q2-20 was down a final -31.4%
• Q1-20 was down a final -5.0%
I used to write this note: +1.0% in GDP growth over a year is when recession selling triggers.
That is indeed what happened in 2020, and in record time.
• 2022 annual GDP growth is at +4.4%. August Consensus Economics data.

• 2021 annual GDP growth sits at +6.2%. August Consensus Economics data.
• 2020 annual GDP growth consensus finished at -3.5%.
• 2019 annual GPD growth consensus was +2.2%.
For 2021, Zacks call is for +6.2% GDP growth; in line with the August 2021 Consensus Eco-
nomics average. For 2022, the U.S. economy will mark a +4.4% snapback. For 2022, that
same consensus shows a +4.4% real GDP growth rate.
Prior to shutdowns, Zacks economists modeled a trend +2.1% to +2.3% U.S real GDP growth
rate.
Don’t overthink 2021 earnings and GDP growth snapbacks. Any surprises to that consen-
sus, positive or negative, is what matters now. Not the snapback.
Realize. The Biden administration will not embellish macro and stock market facts.
Still, there should still be meaningful trader concerns, on the spread of the corona virus,
deeper effects from U.S. tariffs, aggressive Russian or N. Korean, or Chinese military belliger-
ence, $3T annual federal fiscal deficit spending, internal and external political instability,
and a lack of bipartisanship (an update on that last point is encouraging).
To sum job market matters up: On September 3rd, 2021 we learned U.S. total nonfarm payroll
employment across August added +235K jobs, but July was revised upwards (by +24K) to
+962K and June got revised upwards (by +110K) to +1,053K jobs. May added +614K jobs.
The household unemployment rate went to 5.2% in August, after showing us 5.4% in July,
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5.9% in June, 5.8% in May, 6.1% in April, 6.0% in March, and 6.2% in February 2021.
Remember: This is a lagging macro indicator.
The household unemployment rate was 6.7% in November and December 2021. It collapsed (under shutdowns) to
13.3% in May 2020.
“So far this year, monthly job growth has averaged 586K. In August, notable job gains occurred in professional and
business services, transportation and warehousing, private education, manufacturing, and other services. Employ-
ment in retail trade declined over the month.” – B.L.S. September 3rd
NOTE: According to the BLS, average hourly earnings are up +5.8% (at an annual rate) over the past four months,
signaling employers are offering stronger incentives to attract qualified workers. Much of the acceleration in wages
comes from earnings of blue collar and manual services industries. During the four months to July, average hourly
earnings increased by +17% (at an annual rate) in the leisure and hospitality sector and by +14.7% in transportation
and warehousing.
The chart below shows you Leisure & Hospitality jobs data to August. The U.S. is still missing 1.36 million Leisure and
Hospitality jobs, post-COVID.
Furthermore, if you factor in the rise in U.S. Consumer Price Inflation? Take a look (below).
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Next are summary time series for two key U.S. civilian household unemployment rates.
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The final chart shows around 40% of U.S. unemployed workers have been idle for 27 weeks (half a year) or longer. That
is a substantial problem for policymakers.
Latest United States ISM Manufacturing PMI

The following was sourced from the Institute for Supply Management®, Report On Business®. A link to the entire set of
materials is found here: ismrob.org.
Economic activity in the manufacturing sector grew in September, with the overall economy notching a 16th consecu-
tive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report on Business®.
The latest report was issued by CEO Timothy R. Fiore on October 1st:
“The September Manufacturing PMI® registered 61.1 percent, an increase of 1.2 percentage points from the August
reading of 59.9 percent. This figure indicates expansion in the overall economy for the 16th month in a row after con-
traction in April 2020.
Source: Isabelnet.com. Public Data to Sept. 1st, 2021, Board of Governors of Fed, ISM.
Page 20
The New Orders Index registered 66.7 percent, unchanged from the August reading.
The Production Index registered 59.4 percent, a decrease of 0.6 percentage point com-
pared to the August reading of 60 percent.
The Prices Index registered 81.2 percent, up 1.8 percentage points compared to the
August figure of 79.4 percent.
The Backlog of Orders Index registered 64.8 percent, 3.4 percentage points lower than
the August reading of 68.2 percent.
The Employment Index returned to growth with a reading at 50.2 percent, 1.2 percent-
age points higher compared to the August reading of 49 percent.
The Supplier Deliveries Index registered 73.4 percent, up 3.9 percentage points from
the August figure of 69.5 percent.
The Inventories Index registered 55.6 percent, 1.4 percentage points higher than the
August reading of 54.2 percent.
The New Export Orders Index registered 53.4 percent, a decrease of 3.2 percentage
points compared to the August reading of 56.6 percent.
The Imports Index registered 54.9 percent, an 0.6-percentage point increase from the
August reading of 54.3 percent.”
Fiore continues, “Business Survey Committee panelists reported that their companies
and suppliers continue to deal with an unprecedented number of hurdles to meet
increasing demand.
All segments of the manufacturing economy are impacted by record-long raw materi-
als lead times, continued shortages of critical materials, rising commodities prices and
difficulties in transporting products.
Global pandemic-related issues — worker absenteeism, short-term shutdowns due to

parts shortages, difficulties in filling open positions and overseas supply chain prob-
lems — continue to limit manufacturing growth potential.
However, optimistic panel sentiment remains strong, with three positive growth com-
ments for every cautious comment.
Panelists are fully focused on supply chain issues in order to respond to the ongoing
high levels of demand.
Demand expanded, with the (1) New Orders Index growing, supported by continued
expansion of the New Export Orders Index, the (2) Customers’ Inventories Index remain-
ing at very low levels, and the (3) Backlog of Orders Index staying at a very high level.
Consumption (measured by the Production and Employment indexes) grew slightly

during the period, with a combined 0.6-percentage point increase to the Manufactur-
ing PMI® calculation. The Employment Index returned to expansion after one month of
contraction, but hiring difficulties at panelists’ companies show no significant signs of
abating.
Inputs — expressed as supplier deliveries, inventories, and imports — continued to

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support input-driven constraints to production expansion, at higher rates compared to August.

The Supplier Deliveries Index reversed a recent pattern of softening, while the Inventories
Index continued to expand faster due to work-in-process inventory being held longer because
of key part shortages, as well as more finished goods inventory being held due to downstream
customer issues. The Prices Index expanded for the 16th consecutive month, at a faster rate in
September, indicating continued supplier pricing power and scarcity of supply chain goods.
“All of the six biggest manufacturing industries — Petroleum & Coal Products; Computer &
Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Fabricated
Metal Products; and Transportation Equipment, in that order — registered moderate to strong
growth in September.
“Manufacturing performed well for the 16th straight month, with demand, consumption and
inputs registering month-over-month growth, in spite of continuing unprecedented obstacles
and ever-increasing demand. Panelists’ companies and their supply chains continue to strug-
gle to meet demand due to difficulties in hiring and a clear cycle of labor turnover, as workers
opt for more attractive job opportunities. Disruptions from COVID-19, primarily in Southeast
Asia, continue to have an impact on many industry sectors. Congestion at ports in China and
the U.S. continues to be a headwind, as transportation networks remain stressed. Demand
remains at strong levels, despite increasing prices,” says Fiore.
What ISM Respondents Were Saying
“Many electronic components and assemblies shortages showing up (due to) port issues, lack
of containers and other issues. Problematic, but nothing completely shut down yet. Watching
COVID-19 restrictions country by country.” [Computer & Electronic Products]
“The impacts from Hurricane Ida on the petrochemical industry has put additional stress on
an already fragile supply chain. Logistics with intermodal containers and motor carriers con-
tinues to be a challenge for planning deliveries of materials.” [Chemical Products]
“In the U.S., labor availability is the most significant supply challenge for our company, with
raw materials just behind. Plastic resin, polyurethanes, small-volume steel purchases and
electronics are the biggest material challenges.” [Transportation Equipment]
“Lack of labor and escalating costs from every direction are very concerning.” [Food, Beverage
& Tobacco Products]
“Ocean freight delays creating disruptions in many areas. Southeast Asia supply continues to
be challenged due to COVID-19 outbreaks.” [Furniture & Related Products]
“Delivery and availability of raw materials, primarily carbon steel, are becoming more and
more difficult to source. This has resulted in delaying order deliveries. Computer numerical
control (CNC) machining services are at a premium; it’s difficult to get the deliveries needed
to complete jobs. Traditional in-house machining now has to be outsourced due to a lack of
experienced machinists. All this has had a negative impact on production throughput.” [Fabri-
cated Metal Products]
“Customer demand continues to swell as we prepare for the fourth quarter, and overall growth
has been extremely good for the year. Supply chain concerns are growing beyond electronics
and chips into most other commodities. Lead times are extending, shipping lanes are slowing,
and we will not see an end to this in 2021.” [Electrical Equipment, Appliances & Components]
“We are still amazed by the labor market. We used to have 100 applicants for an opening; we
Page 22
are now seeing about 10 — and often, the applicant does not show for the interview.” [Paper
Products]
“Our company’s entire supply chain continues to have significant challenges getting manpow-
er, which is impacting production of parts and ability to meet daily build schedules. Addition-
ally, the logistics problems — especially port delays and a shortage of shipping containers —
are significantly impacting inbound and outbound shipments. Raw materials costs still are at
record highs, and we have raised customer pricing, with additional increases in the near future
due to labor costs going up. Huge customer orders are nine months out (due to) backorders.
Seeing this domestically and internationally.” [Machinery]
“Global supply chain constraints are still a major concern and focus. Inventory builds continue
to compensate for potential supply disruption.” [Miscellaneous Manufacturing]
Of 18 U.S. ISM manufacturing industries, 17 reported growth in September.

Status of Energy Markets
• On Sept. 1st, 2021, WTI oil prices were $67.30 per barrel. Done in June 2021, the Sept.
2022 consensus for WTI stood at $63.72 per barrel.
• Not giving energy bulls help, no related industrial commodities from June 2021 show
upside in forward 12M (Copper -2.6% Aluminum -2.5%, Nickel -1.5%).
• The EIA (below) shows the possibilities for WTI oil prices over the next 2 years.
Source: EIA Short-Term Energy Outlook, September 2021

• Getting the virus under control remains critical. Shutdowns destroy demand for com-
modities. Mobility raises oil demand via rising transportation needs.
• OPEC+ cut 9.7 mb/day in 2020.
• Following consultations via video conference in early April, a group consisting of some
of the world’s most powerful oil producers decided to collectively ease output cuts in
the coming months, which currently stands at over 7 million bpd.
• Starting in May, the group will produce an additional 350,000 barrels per day, with an-
Page 23
other 350,000 expected to come on the market in June, while in July, output will be increased by 450,000 bpd.
• Over the same period, Saudi Arabia will gradually roll back its voluntary oil output cut of 1 million bpd, adding
250,000 bpd to its production in May, 350,000 bpd in June and 400,000 bpd in July.
• For domestic energy bears, a fall in U.S. oil rigs is long gone. Baker Hughes counted 470 rigs on June 25th, 430
rigs on April 1st, 402 rigs on Feb. 1st, 2021 and 351 rigs on through Dec. 30th, 2020.
On Sept 27th, 2021, Goldman Sachs raised its forecast for year-end Brent crude oil prices to $90 per barrel from $80, as
a faster fuel demand recovery from Delta variant and Hurricane Ida’s hit to production led to tight global supplies.
Brent futures hit a near three-year high last week as global output disruptions have forced energy companies to pull
large amounts of crude out of inventories.
Oil prices were trading at $79.19 a barrel, as of 0619 GMT on Monday, while U.S. West Texas Intermediate (WTI) crude
were at $75.08 a barrel.
“While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the
recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply
remaining short of our below consensus forecasts,” Goldman said in a note dated Sept. 26th, 2021.
Following up on that, OPEC+ said on Monday Oct. 4th that it would stick to an existing pact for a gradual increase in oil
output, sending crude prices to three-year highs and adding to inflationary pressures that consuming nations fear will
derail an economic recovery from the pandemic.
OPEC+ “reconfirmed the production adjustment plan,” the group said in a statement issued after online ministerial
talks, referring to a previously agreed deal under which 400,000 barrels per day (bpd) would be added in November,
Brent crude then roared above $81 a barrel on news that the group would stay with its plan for gradual additional
production, rather than offering more supply to the market.
Page 24
WTI Oil Prices ($/Barrel) and Iron Ore Prices ($/Dry Metric Ton) 5 Years
Source: Zacks Research System, October 5th, 2021
Asset Allocation Summaries
DJIA Similar to the S&P500, the Dow should record low double-digit gains across 2021.
2H-21 and 2022 estimates show us no sector negatives.
Bears sell or short on lofty valuations; global activity struggles via higher virus counts from
variants; a rising long-term Treasury yield; and from any sight of a jobless demand recovery
inside the USA.
NASDAQ Stay positive on Info Tech – on a 2H-21 and 2022 look ahead.
Follow strong Zacks Heat Map tech industries. Zacks #1 Rank IT stocks remain well-cov-
ered.
• Prior to COVID, Info Tech sector profit margins were 21.6% in Q3-19. They were
24.6% in Q1-21. The S&P500 sector average profit margin was 11.4% in Q3-19, com-
pared to 12.8% in Q1-21. So, Info Tech margins are double an average sector.
• Q3-21 Info Tech earnings are estimated at +19.4% and Q4 is at +7.5%.
• Q2-21 Info Tech earnings are somewhere around a +58.6% growth rate.
• IT growth can rise more than the latest marks. Remote working is tech-driven.
For 2021, we see +31.3% annual Zacks Computers & Tech earnings growth and +16.0%
revenue growth.
A Zacks Research System chart (below) shows you something important. Multiple Trillions
of Central bank liquidity and the Trillion dollar market caps of these Mega-cap tech stocks
Page 25
pushed the major U.S. benchmarks higher.
Apple (AAPL), Amazon (AMZN), Facebook (FB), Google (GOOGL), Microsoft (MSFT), and Netflix (NFLX) have very
high forward 12M P/E multiples. This mega- cap P/E valuation bias is incorporated in the S&P500 and the Nasdaq.
Consult their market capitalizations (hitting over $2T) in this chart below.
Source: Zacks Research System, Oct. 4th, 2021
5 of the mega-cap stocks drove the U.S. large cap indexes higher the last 10 years. Netflix? Not so much.
Their market capitalization as a percent of the S&P500 is around 22% in late 2020, versus just 5% in 2010 (according to
Refinitive data).
Added to that, the COVID pandemic truly accelerated online shopping and remote working. These aggregate demand
factors were already in place before 2020. But 2020 probably moved the amount of Internet-driven activity ahead by 5
years.
But be aware. The Biden administration is going to pursue anti-competition litigation.
Russell 2000
Russell 2000 stocks lead – when markets go full “Risk-on.” A 2021 small cap “risk-on” rally can be revived, as both U.S.
and global political risks fall, and global growth upgrades show up, more broadly.
Always be mindful of illiquid small cap shorting. In ‘Risk-off” periods, shorts can cut down unprofitable small caps
-50%.
Page 26
Fed Funds
On Sept. 22nd, 2021, we got the latest FOMC statement—

“The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time,
thereby promoting its maximum employment and price stability goals.
“With progress on vaccinations and strong policy support, indicators of economic activity and employment have
continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but
the rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting transitory factors. Overall
financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow
of credit to U.S. households and businesses.
“The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue
to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.
With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moder-
ately above 2 percent for some time so that inflation averages 2 percent over time and longerterm inflation expecta-
tions remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary
policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate
at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have
reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2
percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that
it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mort-
gagebacked securities by at least $40 billion per month until substantial further progress has been made toward its
maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If
progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may
soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial con-
ditions, thereby supporting the flow of credit to households and businesses.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of
incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary
policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s as-
sessments will take into account a wide range of information, including readings on public health, labor market condi-
tions, inflation pressures and inflation expectations, and financial and international developments.”
No rate change is forecast until 2023. Here are the recent FOMC macro projections.
Sept 22, 2021 Fed Economic Projections
The Fed has provided immense liquidity across bond markets, in government, mortgage, and corporate.
In closing, expect nearly all FOMC members to vote for uber-accommodative measures to the end of 2023. As a base
case.
10-yr Treasury
The 10-yr Treasury was 1.3% this month, up 10 basis points from last month.
Consult the following chart to confirm. The 10-yr is the orange line below.
Page 27
U.S. Treasury Yield Curve (2018 to 2021)
A 3.0% 10-yr Treasury yield was in play during the fall 2018. A 10-yr rate from +2.5% to +3.5% showed the range I used
across 2017.
Seeing the 10-yr U.S. Treasury rate climb towards 2.0% to 2.5% is in play as vaccine distribution reaches herd immuni-
ty, massive fiscal spending shows clear job demand creation, and any monthly FOMC bond-buying ‘tapering’ exceeds
trader expectations. All of this is embedded in the bond market’s current prices.
The Fed is the primary repressor, with an assist from other G10 central banks.
In 2022 – if the Fed changes course based on macro data; long-term rates can easily go up more than 2.0%.
Will rising inflation eventually become part of the landscape? A recent liquidity spike has led many investors to won-
der. In May 2021, this is still a question without an answer.
The 10-yr Treasury bond rate, applying a Fed Funds rate at 0.0%, is basically a loose proxy for expectations on the core
consumer price inflation rate.
Corporate High Yield and Investment Grade Bonds
In our August 2021 poll, CIOs thought High Yield could be mixed. Some could see expanding spreads. Others, the op-
posite. IG spreads should be stable.
IG corporates offer the solid coupons. Less attractive risk-free rates drive corporate bond demand. Cash on balance
sheets remains impressive. Investors should own these bonds. A 3.5% to 4.5% coupon may be what is delivered.
In light of Fed controlled credit spreads, I would be a careful buyer (long-term) on Investment Grade. High Yield debt is
fully priced in, and then some.
Municipal Bonds
Page 28
Note: In our latest poll done in August 2021, CIOs were neutral on Munis.
State tax efficient munis always look excellent for older income investors. Having written that, all bond classes get pres-
sured by rising rates, or a state budget crisis (is a tactical bottom close?). Plan to hold to maturity (on 5-year paper?) as
a precaution. U.S. rates can rise. Yes. I know they are very low right now. Suppression will end.
Federal recovery acts backstop state and local entities.
WTI Oil
Consensus looks for $65 a WTI barrel by September 2022.
Our oil price outlook is tied to OPEC+ agreements, U.S. “fracker” rig counts, and any increase/decrease in global de-
mand for gasoline-at-the-pump.
Gold
Gold traded at $1,768 an ounce on October 4th, well below a $1,895 an ounce price marked at the start of the year, on
Jan. 4th, 2021.
I would be a seller at these Gold price levels. I had the following long-time range call: For years, gold prices danced
between $1200 to $1300 an ounce.
Gold price downside hails from a strong U.S. mobility despite variants, higher expected consumer price inflation, and
interest rates. These can be brought about by virtually any pickup in global GDP growth rates.
Even though Gold’s price tends to be influenced by numerous drivers (listed above), real risk-free yields are arguably
considered the most important. This is important in light of recent upside action in U.S. 10-yr. Treasury yield. The
increasing use of bitcoin is the latest bear factor for gold.
A silver price uptrend no longer remains intact. Feb 2021 saw $29 a troy oz. $26.70 was here in May 2021.
Page 29
Consult the twin chart below. GREEN shows silver spot price. BLUE shows the gold price.
Gold Prices (USD per ounce) versus Silver (USD per troy ounce),
2017 to 2021
Source: Zacks Research System, October 4, 2021
NOTE: About Zacks Rank Sector & Industry Forecasts Coming Up Next --
Zacks Research System (ZRS) updates the Zacks Ranking System regularly; and groups each com-
pany into three aggregates. Each of the ranking aggregates still apply the standard proprietary
Earnings Estimate Revisions system, but they help sort things out within a top-down context.
Zack aggregates are:

- A 16 Sector grouping (versus the S&P500’s 10 sector groups),
- A 60 mezzanine grouping, known as “Middle” or Zacks M-Rank.
- And finally, a 250+ industry grouping, we refer to internally as the X- Rank.
The table in section 6, running four pages long, applied the consolidated ranking information from
the 60-industry, Zacks Middle, or M-Rank.
Industries titles listed along with the Zacks Middle Industries are S&P500 Industries, with revisions
and additions to reflect specific Zacks industries.
Page 30
4. ZRS Chart of the Month

Below: Sector Forward 12-Month Price to Earnings (P/E) valuations over 3 years.
This data set runs to Oct. 1st, 2021.
A table (below) studies these S&P500 sector forward 12-month P/E ratios, as of October 4, 2021. I list nine S&P500 sec-
tors. This list excludes Energy and Real Estate.
Sector Current P/E Mid 3-yr. P/E Difference (%)

Info Tech 26.93 16.46 10.47
Consumer Discretionary 30.49 20.78 9.71
Industrials 20.66 16.04 4.62
Financials 14.42 12.55 1.87
Utilities 18.51 16.93 1.58
Consumer Staples 19.99 19.05 0.94
Health Care 16.77 16.32 0.45
Materials 15.61 15.62 -0.01
Telcos 21.68 22.65 -0.97
The most bullish groups? Note huge S&P500 sector P/E differences in Info Tech (10.47), Cons. Discretionary (9.71),
and Industrials (4.62) sectors, in that order. Stocks inside the three sectors are worth focusing on.
The Financials, Utilities, and Consumer Staples are middle ground now.
Sideways trading groups? Low serial valuation differences are found in Health Care (0.45), Materials (-0.01) and
Telcos (-0.97) sectors.
Page 31
5. Zacks Rank S&P500 Sector Picks

Zacks October Sector/Industry/Company Telescope
A full fall Zacks Rank system showed 6 strong sectors; similar to 6 elevated in July.
But Info Tech, Industrials, & Financials were true top sectors; strong in more industries.
Materials fell precipitously to Very Unattractive from Attractive. Only the Paper industry
escaped a major Zacks Industry Rank downgrade.
2 value sectors: Energy and Financials stayed at Attractive. Oil E&P, and big Integrated
groups remain strong, with $72 a barrel WTI oil prices and $80 Brent. Rates rising helps
Banks. Lower unemployment rates helps Insurers.
Consumer Discretionary rose to Attractive in October. Autos-Tires-Trucks and Consumer

Electronics show where demand and supply bottlenecks meet. Consumer Staples stayed
at Market Weight too, with Agri-business booming with commodity prices.
Health Care rose to Attractive. Medical Care led again. The typical defensives, Telcos and
Utilities, stayed at Market Weight.
(1) Info Tech stayed at Very Attractive. Telco Equipment, Semis (with a global supply short-
age), and Electronics all of those look excellent. Again.
(2) Industrials stayed at Very Attractive. Machinery-Electrical, Metal Fabricating, Machin-

ery, and Railroads were the top industries. Again.
(3) Financials moved to Very Attractive from Attractive. Insurance, Investment Banking,
and Real Estate looks good. Lower loss reserves, trading profit from stocks and M&A deals
help.
(4) Energy stayed at Attractive. Oil E&P and Integrated looked great. Again.
(5) Consumer Discretionary rose to Attractive from Market Weight. Autos/Tires/Trucks

and Consumer Electronics were strong and also show wealth effects from COVID remain in
play.
(6) Health Care rose to Attractive from Market Weight. Medical Care looked best. Drugs
too.
(7) Consumer Staples stayed at Market Weight. Agri-business (commodity price boom)
and Food/Drug Retail looked best. Once again.
(8) Communications Services stayed at Market Weight. Telco Equipment looked best.
Again.
(9) Utilities stayed at Market Weight. Utilities-Water Supply was the best.
(10) Materials fell precipitously to Very Unattractive from Attractive. Paper looked good.
Page 32
6. Zacks Rank October Industry Tables
Zacks Forecasts for S&P 500 Industries

(As of September 30, 2021)
Very Attractive Very
Industry Portfolio (2.00 to 2.64 Zacks Attractive Market Performer Unattractive Unattractive
Rating: Rank) (2.65 to 2.81) (2.81 to 2.99) (3.00-3.20) (3.21 or worse)
Consumer Staples Agri-business Beverages Tobacco (3.00)
(1.84) Soft Drinks,
MARKET Brewers
WEIGHT Food/Drug Retail Distillers &
Hypermarkets & Vintners
Supercenters (2.91)
(2.49)
Food
Food Distributors
Packaged Foods
(2.95)
Cons Prod-Misc.
Staples (2.96)
Consumer Consumer Consumer Home Furnishing- Other Cons Disc Leisure Service
Discretionary Autos/Tires/ Electronics Appliance (3.11) Casinos &
Trucks (2.82) (2.88) Gaming
ATTRACTIVE Auto Retail, Hotels
Automotive Non-Food Publishing Leisure
Manufacturer, Retail/ (2.90) Products
Tires & Rubber, Wholesale Restaurants
Auto Parts & Department Media (3.29)
Equipment Stores, General Movies &
Distributors Merch. Stores, Entertainment Apparel
(2.34) Specialty Stores Cable & Satellite, Footwear,
(2.87) Advertising (2.95) Apparel &
Accessories,
Apparel Retail
(3.35)
Page 33

Energy Oil Exp & Prod Oil & Gas – Oil & Gas Drilling Energy -
(2.54) Integrated (2.70) (2.89) Alternate
ATTRACTIVE Sources (3.25)
Coal &
Consumable Fuels Oil & Gas Prod.
(2.95) Pipeline (3.29)
Oil Misc. (2.98)
Financials Insurance Invest Banking Banks-Major Investment

Insurance Brokers & Brokering Regional Banks Funds (3.72)
VERY Multi-Line (2.75) Diversified Banks,
ATTRACTIVE Insurance Other Diverse
Life & Health Real Estate Financial Srvs.
Insurance (REITs), (2.82)
Property & Real Est. Mgmt
Casualty Insurance & Dev. (2.75) Banks & Thrifts
(2.38) (2.84)
Finance
Specialized &
Consumer Finance
(2.86)
Health Care Medical Care Medical Products

Health Care Life Science Tools
ATTRACTIVE Distributors, & Services,
Health Care Health Care
Supplies, Health Equipment (3.11)
Care Facilities,
Managed
Health Care
(2.61)
Drugs
Biotech,
Pharma
(2.74)
Page 34

Industrials Machinery Industrial Business S’vices Pollution Control Airlines
Electrical Products- HR & Employment (2.94) Air Freight &
VERY Electrical Comp. & Services Services Logistics
ATTRACTIVE Equip. (2.81) Trade Comps & Aerospace & Defense (2.87)
(2.47) Distributors (3.09)
Business (2.78)
Metal Fabricating Products
(2.59) Commercial Construction –
Printing Building Services
Machinery (2.71) Office Services. (2.83)
& Supplies
Railroads & (n/a) Conglomerates
Trucking (2.86)
(2.60)
Info Tech Telco Misc. Tech

Equip (2.39) Data Processing
VERY & Outsourcing
ATTRACTIVE Electronic- Services
Semiconductors Consulting &
Semiconductors Services (2.85)
Semiconductor
Equipment Computer Software-
Electronic Services
Manufacturing Home Entertainment
Services Software,
(2.44) Application
Software, Systems
Electronics Software, Internet
Electronic Software & Services
Components (2.95)
Equipment &
Computer-Office
Instruments
Equipment
Computer Office Electronics,
Hardware, (2.98)
Computer Storage
& Peripherals
(2.61)
Page 35
Very Attractive
Industry (2.00 to 2.64 Zacks Attractive Market Performer Unattractive Very Unattractive
Portfolio Rating: Rank) (2.65 to 2.81) (2.82 to 2.99) (3.00-3.20) (3.21 or worse)
Materials Paper Building Products/ Containers & Glass
Paper Packaging Construction (3.28)
VERY Paper & Forest Materials (3.06)
UNATTRACTIVE Products, (2.53) Steel (3.29)
Chemicals
Fertilizers & Ag. Metals non-Ferrous
Chemicals Diversified Metals &
Industrial Gases Mining, Gold,
Specialty Aluminum,
Chemicals (3.59)
Diversified
Chemicals
(3.10)
Telecom Telco Services Utility Telephone

Telco Equipment
Services Wireless Telecom (3.24)
(2.39)
Services Integrated
MARKET Telecom Services
WEIGHT (2.90)
Utilities Utilities – Utilities

Water Supply Gas Dist.
MARKET (2.89) (3.01)
WEIGHT
Utilities
Electric Power
(2.95)
Page 36
7. October Sell-Side and Buy-Side—Consensus at a Glance

Sell-Side Consensus
A. In early October 2021, FactSet “Bottoms-up consensus is 5,039 12 months out.
B. Sell-side Wall Street Consensus
90% of year end 2021 targets have been met and exceeded.
Page 37
Bottom-up S&P 500 Earnings
• 2021 real U.S. GDP growth is at +5.9%

• 2022 is at +4.3%
Both estimated using September 2021 London-based Consensus Economics data.
• GDP growth in 2020 finished with a -3.4% annual decline

• 2019 was at +2.3%
• 2018 was at +2.9%
• The U.S. saw +2.3% in 2017, +1.7% in 2016 and +2.6% GDP growth in 2015
Furthermore, “bottoms-up “consensus on EPS growth for individual companies in the S&P 500 index saw growth at
-13.2% in 2020 and expect +41.7% in 2021.
S&P500 earnings growth was +0.1% in 2019; a lull after a strong +20.0% in 2018 and +11.0% in 2017. However, this EPS
number was +0.5% in 2016 and -0.6% in 2015.
Consensus used to call for strong EPS growth in 2020 tied to stable trend +2.0% U.S. and global real GDP growth levels
across 2020.
The Zacks view difference?
With negative earnings growth and revenue growth behind us, U.S. traders look to 2H-2021 and 1H-2022 for an ongo-
ing strong EPS and revenue recovery.
Pre-virus, the global economy was cut down by trade wars. Novel coronavirus shutdowns were the coup de grace.
2019 delivered a tariffed-down earnings growth rate and faced tough y/y comps. U.S. risk markets achieved outstand-
ing nominal S&P500 earnings growth in 2018 -- on corporate tax policy. That was an anomaly.
Zacks is in sync with consensus earnings for 2H-2021 and beyond. The U.S. will be witnessing a cyclical recovery. The out-
look on the global economy is uncertain.
There are surely revisions to that ahead. We stay vigilant and will update.
Top-down S&P 500 Earnings
Top-down strategists, who track macro forces and apply top-down judgment to forecast S&P 500 earnings, also looked
for roughly -13% EPS growth in 2020, and +42% in 2021; after no growth in 2019, +20.0% growth in 2018 and +11.0%
in 2017.
The finalized 2019 S&P500 earnings growth rate (+0.1%) was in line with +0.5% EPS growth in 2016 and -1.1% earnings
growth in 2015.
A poor EPS number in 2020 is ‘OK’ when placed next to the all-but-forgotten earnings recession of 2016. The big cyclical
play is to buy in front of double-digit 2021 earnings.
Page 38
Small Cap, Mid Cap, and Large Cap Stocks
Either 2H-2021 or 2022 should be strong for small caps.
The 2020 sell-side was looking for anywhere from +10% to -4% returns, with the mode
at +6.0%. There was no favorite style class. With vaccine distribution, these became
outperformers. Pre-virus, this roughly mirrored the buy-side.
Over the next 12 months, December 2020 CIOs forecasted returns for small caps at a
+0 to +5% annual return, with similar sentiment on mid-caps at +0% to -5.0% returns.
Large caps deliver +0% to -5% returns too.
• Value index returns outperform Growth index returns for small and mid-caps.
• Value returns underperform Growth index returns in the Large Cap style too.
2019 saw a rebound on small and mid-cap stocks.
For perspective, the small caps were on a run in 2018. 2H-2017 was when small caps
turned up. Specifically, September 2017. This followed 2 years of risk-off pessimism.
2016 recorded a bounce for small caps, with regional banks up big after the election.
Fed rate shifts, financial excess leading to recession, Trump unpredictability, and huge
U.S. Treasury debt sales, and U.S. Presidential election volatility used to mark points
of worry for bears.
Now, it is all about the coronavirus vaccine distribution narrative.
The Zacks view difference?
For 2021, we are in line with ~20% returns for the S&P500. We can see a +18% for the
small-cap growth indexes.
Last year, we called it right. From late March to early April 2020, we turned bullish
on U.S. growth and value stock indexes across the style spectrum. Tech stocks were
where our favorite industry groups lay.
We would keep market weight on value indexes for the rest of 2021, including Energy.
In addition, we will see any stiff 2021 selloff on smaller cap indexes as a time to
pounce, but only on ETFs, not individual risky stocks. There is value to shifting into
small and mid-cap index tracking, not names.
Large caps outside the U.S. are also worthy in 2021, on a 2022 forward look. A strong
rotation into them would be confirmed, as GDP growth picks up outside the USA —
relatively more.
China is the exception. It has government crackdowns of selected tech firms under-
way.
Page 39
Buy-Side Consensus
S&P 500 and Russell 2000
In August 2021, our CIOs thought that:
• The likeliest Large Cap return is worse than -5.0% over the next 12 months
• The likeliest Mid Cap return is 0 to -5 percent over the next 12 months
• The likeliest Small Cap return is 0 to -5 percent over the next 12 months
Only 33% of CIOs were positive on 2021 year-end returns.
For reference, the August 2019 survey buy-side consensus came in at 48% positive.
S&P 500 and Russell 2000: Value or Growth
August 2021 showed large-cap and small-cap Value indexes outperforming Growth indexes
in the coming year. Mid-cap Value outperform or is market perform.
For large, mid, and small caps, Growth under performs. For mid cap, Growth indexes under
perform.
A year ago, the August 2020 survey results showed small, mid and large cap Value in-
dexes should outperform Growth indexes.
August 2019 showed a strong preference for Value over Growth for any style of index.
The April 2019 and January 2019 and October, May, and Feb 2018 surveys, and Octo-
ber, August and April 2017 surveys showed a buy-side preference for value over growth
stocks in the large mid, and smalls caps too.
Keep in mind. These are long-term investors, not momentum traders.
Fed Funds
In August 2021, our CIOs saw the Fed Funds at 0 to 50 bps in 12 months.
In August 2019, a majority of CIOs saw less than 250 bps on the Fed Funds rate in 12
months: with 9% at 50 to 100 bps, 9% at 100 to 150 bps, 27% at 150 to 200 bps, and 18%
at 200 to 250 bps.
In April 2019, CIOs saw Fed rates out 12 months – as 250 to 300 basis points. In October
2018, it was a lower 200 to 250 bps.
10-yr Treasury
In August 2021, CIOs had the 10-year Treasury at 1.5 to 2.0% in 12 months.
In November 2019, CIOs had the 10-yr Treasury rate between 2.0% and 2.5%.
In October 2018, a mode of (50%) CIOs in our survey also thought the 10-year Treasury
rate
range should fall between +3.0 to +3.5%. Page 40
Corporate High Yield and Investment Grade Bonds
In August 2021, CIOs expect IG credit spreads to remain unchanged. They expect HY
bond credit spreads to expand.
In April and August 2019, CIOs expected IG bond credit spreads to stay the same.
The CIOs expected HY credit spreads to widen.
Municipal Bonds
In our August 2021 survey, our CIOs were neutral on returns for Munis.
In August 2019, 44% of CIOs were bearish, and 33% were at Market Perform.
Asset bubbles and debts piling up via bigger U.S. deficits are the concerns.
WTI Oil and Commodities GSCI Index
In the August 2021 survey, CIOs had WTI oil at Out Perform.
In the August 2019 survey, WTI oil had 70% of CIOs at Market Perform. In the April
2019 survey, (30%) of CIOs were Bullish on oil, and (40%) were at Market Perform.
(30%) were Bearish. October 2018 was Market Perform” on Oil prices too.
In August 2021, CIOs were at Out Perform on Commodities. This has stayed consis-
tent.
In August 2019, Commodities are 50% Market Perform and 30% Bullish. Com-
modities stayed Market Perform in both April and January 2019.
Gold
In August 2021, CIOs are neutral on gold.
In Nov. 2019, CIOs were bearish on Gold.
In August 2019, 50% of CIOs were at Market Perform on Gold. 30% are Bullish.
In April 2019, 40% of CIOs were Market Perform on Gold. 50% were Bullish. 10%
were Bearish.
Page 41
DI SC L AIM E R
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment
Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent
Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research
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tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this
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DI SC L AIM E R ( CONT INUED )
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Stock Market

Zacks Investment Management

Zacks October View On Equity Markets 2

U.S. Macro Outlook From San Fran Fed 5

Zacks Forecasts At A Glance 8

1. Zacks October View on Equity Markets

Cumulative Confirmed COVID-19 Deaths in the USA

2. U.S. Macro Outlook- San Francisco Fed “Fed Views”

3. Zacks Forecasts at a Glance

Fair Value at 5-yr Actual YE price of

Zacks Price Target for

Russell 2000 (blue) &

Source: Zacks Research System (ZRS), August 5th, 2021

The last 20 weeks or so, that run has consolidated.

Why unusually large S&P500 earnings growth rates?

How did stock markets price this in?

Next are September 30th, 2021 YTD S&P500 sector returns:

• Energy $XLE: +38.4%

And 6 sector laggards:

• Health Care $XLV: +12.1%

October Zacks Sector Ranks showed top-down investors a pro-cyclical order:

• Info Tech, Industrials, and Financials led

Super strong prints in global manufacturing PMIs?

Source: Publicly available. Our World in Data, to Sept. 30, 2021

US COVID 7-day Case Rate per 100,000 by State

Setting U.S. Returns Expectations for Q3-2021 and Beyond

Mr. Market always rules. He sees the money printing.

• Basic Materials (+141.3%)

What Produces 2022 Optimism?

U.S. Housing Dashboard (2017 to 2021)

Source: Zacks Research System, Oct. 4th, 2021

In hindsight, look at the last 3 years:

place. They are optimistic.

• Q4-2021 shows EPS growth of +20.2% and revenue growth of +10.5%

In short, traders see positive quarterly earnings growth rates. So do analysts.

What’s Alive for 2022 Pessimists?

Is It Time to Buy U.S. Stocks in Early October?

Consult the chart next…

The Fed insists their policies absolutely do not add to inequality.

What of U.S. GDP Growth?

• Q2-21 2nd run data was up +6.6%

• 2022 annual GDP growth is at +4.4%. August Consensus Economics data.

Remember: This is a lagging macro indicator.

Latest United States ISM Manufacturing PMI

Global pandemic-related issues — worker absenteeism, short-term shutdowns due to

Consumption (measured by the Production and Employment indexes) grew slightly

Inputs — expressed as supplier deliveries, inventories, and imports — continued to

support input-driven constraints to production expansion, at higher rates compared to August.

What ISM Respondents Were Saying

Of 18 U.S. ISM manufacturing industries, 17 reported growth in September.

Source: EIA Short-Term Energy Outlook, September 2021

• OPEC+ cut 9.7 mb/day in 2020.

Source: Zacks Research System, October 5th, 2021

Asset Allocation Summaries

2H-21 and 2022 estimates show us no sector negatives.

pushed the major U.S. benchmarks higher.

Source: Zacks Research System, Oct. 4th, 2021

But be aware. The Biden administration is going to pursue anti-competition litigation.

On Sept. 22nd, 2021, we got the latest FOMC statement—

Sept 22, 2021 Fed Economic Projections

U.S. Treasury Yield Curve (2018 to 2021)

Source: Zacks Research System, October 4th, 2021

Corporate High Yield and Investment Grade Bonds