Economic Tilts Rebalance for January 2023

RECOMMENDATIONS FROM ZACKS CHIEF EQUITY STRATEGIST AND ECONOMIST JOHN BLANK, PHD.

To Dec. 15th, there remains a YTD -16.2% S&P500 pullback, along with a -18.9% YTD small cap Russell 2000
pullback. The S&P500 at 4,000 has been tough resistance.
For bulls, Santa Claus days may get the S&P500 no more than 4,000 at yearend. My current YE “fair value”
mark was reset lower to 3,880, after negative EPS revisions.
For bears, the Dec. 13-14 FOMC meeting did give up a 50 basis-point Fed Funds hike. Now, look for 25-50 bps
in Feb., 25 bps in March, maybe 25 bps more by June, ending at 5.0% to 5.25%. A six-month Fed Funds final
lift, given the roll-over in the broad U.S. CPI. The FOMC’s 4.1% Fed Funds rate in 2024 says they ease 100 bps
a full year later.
Valid worry of a recession in the U.S. and Europe, keep me with rank-order interest in safe haven U.S. names.
However, a turn in the US dollar index, after hitting a peak in early Nov. 2022, says portfolio capital is flowing
into non-U.S. names. Now.
Contrary to most thinking, COVID Omicron cases in Mainland China can keep those stocks moving ahead. The
government has turned to opening and stimulus.
The S&P500 LargeCap is at a 17.3 F12M P/E ratio, on Dec. 15th. It was 16.1 in late Fall.
The S&P400 MidCap is at 13.2 (it was 12.0 in late Fall).
The S&P600 SmallCap is at 12.8 (it was 11.4 in late Fall).
In light of a valuation lift-off, keep buying U.S. shares, still in a slow, regular, methodical way. There is broader
institutional interest, showing up via higher valuations.
As for Mainland China, modestly pick up #1 ranked China large cap names. Staying contrarian worked. Their
selling/shorting represented an entry point/buying opportunity.
My rank-ordered convictions:

1 Buy Info Tech, Industrials, and Financials in the SPY.

» There are now five Semi Chip ZPS videos. Watch at least the first two, then cherry pick for broader interest, in
speculative areas. These are ideas drawn from rigorous analysis.

Semiconductor Primer
Chip Primer: Round Two
Chip Primer: Round Three
 Chips, Round 4: EVs and Batteries
Chips, Round 5: EV and Battery ETFs

» Pick up the best large cap semi shares, shown inside these videos. Or buy the chip stock ETF, after the U.S.
Senate passage of the domestic chip production bill.

» Buy Industrials, as a play on the newly-announced G7 infrastructure package: The Partnership for Global
Infrastructure (PGII). This has been a great suggestion this year.

» The Tech Select Sector SPDR (XLK) and Industrial Select Sector SPDR (XLI) ETFs are where you need to look
at, for large cap stock ideas.

» Zacks Industry Rank and Earnings Scorecards show us double-digit annual EPS growth. Go to Zacks Heat Map
for hot industries.

» I would buy Financials (both smaller regional names and larger cap ones).

» A bank’s core risk now is a recession loss risk. My thinking is that is not as deep or as soon, as the market
thinks. That creates a bull case.

» Financial SPDR ETF (XLF) is a good place to hunt for names, along with the Zacks Industry Rank heat map
system.

2 Accumulate Midcap stocks.

» Updated reasoning: June 16th, the Russell 2000 (RUT) index bottomed at a 1,650 price. Sept. 29th, it was 1,715.
Oct. 25th, it was 1,750. Nov. 28th, it was 1,870. Dec. 15th, 1,820. The RUT was 1,680 in pre-COVID times at Feb.
2020. I see YE downside resistance.

» The October 2022 CIO survey was relatively more bullish on Mid Cap Value.

» On July 18th, 2022 we did a Zacks Professional Services video, offering details on this subject of mid cap ETFs.
Get the specific Mid Cap ETF PowePoints from your ZPS contact. Or click the link.

What Are the Best-Positioned ETFs and Stocks For This Market?

» On August 3rd, ZPS did a small cap ETF video. Watch it.

Picking the Small Cap ETF for this market

» Midcaps are relatively less risky, given U.S. recession worries, but the 2 indices closely track each other.

» We need the FOMC to get out of the way, but risk-takers are moving aggressively, with the lower CPI readings,
in anticipation. This FOMC rate hike schedule remains data-dependent, on the broad CPI prints, flowing out each
month.

advisortools.zacks.com 2
 » Go with Blend MidCap ETFs with high AUM:

Vanguard MidCap (VO)

SPDR Portfolio S&P400 MidCap (SPMD)

Vanguard S&P MidCap 400 (IVOO)

» The WisdomTree U.S. MidCap Dividend ETF (DON) looked interesting, but from a longer-term investing context.

3 Buy the iShares Biotech (IBB) ETF.

» Major biotechs are not rate sensitive. The share’s high beta nature is seen as an asset, once again. I see IBB at
a $133 price on Dec. 15th, above a $130 price on Nov. 28th. There was a $120 price on Oct. 25th. IBB had a $118
price on Sept. 29th.

» We have a 50% retracement. The 52-wk low is $104.29 and the 52-wk high is $155.17.

4 Stay with China Tech. Keep accumulating. Very, very carefully.

» Yes. These tickers sold off. I remained contrarian. The PBoC cut their policy rate, and there were signs of a
central real estate intervention.

» This remains a worthy moment, from a valuation perspective. A share rebound did get led by large can names
like JD, TCEHY, BABA, and BIDU. Note: BABA went from a $63 low on Oct. 24th to $75 on Nov. 28th and $90 on
Dec. 15th.

» Other Zacks #1 Rank Mainland China or Hong Kong large cap names to look into:
HSBC (HSBC), Pinduoduo (PDD), Byd (BYDDY)

» KraneShares CSI China Internet ETF (KWEB) is the primary ETF to look into.

» Other major China ETFs, with the most AUM:

» iShares MSCI China ETF (MCHI)

» iShares China LargeCap ETF (FXI)

Warm Regards,

John Blank
Zacks Chief Equity Strategist and Economist

advisortools.zacks.com 3
Customer Support
If you ever have questions about Zacks Advisor Tools or need
assistance, please contact us using the information below and
we’ll be happy to assist you.

(888) 691-0681 advisortools.zacks.com

support@zackspro.com

All images used in these marketing materials are licensed through

Shutterstock® or Unsplash.