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In August, the bear market in the Nasdaq and the Russell 2000 finally came to an end. And a new bull market began. It doesn't feel like that lately, given the recent volatility. But those are the stats. Just like a -20% decline from the highest close marks the end of a bull market and the beginning of a bear market, a 20% increase from the lowest close marks the end of a bear market and the beginning of a bull market. From their lowest close in June, the Nasdaq rallied 23.3% while the Russell rallied 22.5%. The S&P just missed exiting their bear market. But they did gain an impressive 17.4% at their best, since their June low close was made. The Dow never entered a bear market, just a correction. But they too saw an impressive rebound gaining 14.3% since their low close was put in. But then profit taking set in for all of the indexes, and those gains were trimmed by more than half. Nonetheless, the worst looks like it's behind us. After 2 quarters in a row of negative GDP (-1.6% in Q1 and -0.6% in Q2), Q3 is estimated to grow by 1.3%. (It's no longer a recession once the economy starts growing again.) And peak inflation looks to be behind us as well. Inflation still remains near 40-year highs. But inflation has been ticking down for the last few months. Headline inflation, according to the Consumer Price Index (CPI), is at 8.3% y/y, with core inflation (less food & energy) at 6.3%. That's down from its peak of 9.1% and 6.5% respectively. While that dip is not a lot, and it's a far cry from the Fed's goal of getting it back down to 2%, the mere fact that it's no longer making new highs, and instead is ticking lower, is a step in the right direction. That also means the Fed may not have to raise rates as much as people had previously feared. Rates are indeed still going to go up. And they should. High inflation is far worse for the economy than higher interest rates. And when the Fed meets next week (September 20-21), there's a near certainty that they will raise rates by at least another 75 basis points. With the midpoint for the Fed Funds rate currently at 2.38%, another 75 bps would put the midpoint at 3.13%. And with the Fed previously saying they see the target rate getting to 3-3.5% by year's end, and other members recently saying they see it getting above 4% by early next year, they still have more to go. But inflation expectations have simultaneously been going down. And with each interest rate hike, inflation expectations, and inflation itself, should continue to decline as well. A few months ago, many were expecting inflation to soar above 10% or more. Now it's closer to 8%, with expectations for it falling to 5-6% next year, with the core rate falling even lower. Fears that interest rates would need to climb above the inflation rate had people in a panic, especially when inflation was expected to eclipse 10%. But with inflation expected to moderate to the 5-6% range, interest rate expectations have moderated as well. Both of which are bullish. More . . . | ||||
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| Be Greedy When Others Are Fearful In June, as stocks were hitting their worst levels, that's when the pundits were at their loudest, telling everyone to sell their stocks. Right at the bottom. Had you sold, you'd be down at least -23.6% (that was when the S&P put in its lowest close on June 16th.) I say 'at least' because many stocks fell far more than that. And you also would've missed out on the double-digit gains that we've seen since then. It's a classic mistake too many traders and investors make. And now with the recent pullback, those same people who said to sell at the lows, are back again and saying the same thing. Don't listen. Stocks valuations are down. In fact, the P/E ratio for the S&P is trading below its five-year average. And that makes stocks a bargain. Of course, if earnings drift lower, valuations will tick higher. But there's plenty of room for stocks to remain relatively cheap. And the earnings outlook is still forecasting growth. That should come as no surprise as consumer spending is strong, business investment is strong, corporate earnings are strong, and the jobs market is exceptionally strong (unemployment is at 50-year lows). Add in another trillion dollars in stimulus between the CHIPS Act and the Inflation Reduction Act, and that should extend the growth outlook even further. Will History Repeat Itself? For some, it's probably hard to get too excited about the market right now. Stocks are still down from their highs and for the year. But after such a dismal start in the first half of the year, the second half is already looking markedly better. In fact, I'm reminded of the comparison that was made between the first half of this year, and the first half of 1970. This year's first half performance (the S&P was down nearly -21%), was strikingly similar to that of 1970 (also down -21%). And in both periods, high inflation was an issue. But in the second half of 1970, the S&P was up 27%. Of course, that doesn't mean that's how it'll go for the back half of this year. But it doesn't mean it won't either. And, so far, it looks like we could very well be heading in that direction. Foolproof Way Of Getting In At The Right Time Remember, a large portion of a new bull market comes at the very beginning of the move. So now is the time to get in. While we've bounced nicely off the lows so far, we have not advanced so much to feel like you missed it. But that could change quickly. Of course, not every stock you pick will go straight up. So decide to cut your losses short. For me, I typically get rid of a stock once it's down -10%. Why ten percent? Because if I lose -10% on a trade, I only need to make a little bit more than 10% (11.1%) on my next trade to get that money back. But if you lost -20% on a trade, you'll need a 25% gain to get that money back. At -30%, you'll need to make 43%. And if you lose -50% on a trade, you'll need a 100% gain on your next trade just to break even. So, if a stock goes against you, get out. There are too many great stocks performing spectacularly to waste your time on laggards. And savvy investors who diligently stay engaged in the market, and scan for new stocks, even during tougher times, will inevitably find themselves in some spectacular picks with picture perfect entries. In hindsight, we now know the market bottomed on June 16th. That was not obvious one day later on June 17th. Nor was that obvious a week later. But as time went by and the market rallied off its lows, it became more and more obvious that we just saw the bottom, at least for the short-term. And while the S&P, for example, is now 'only' up 7.62% from their June 16th low close to now (9/14), there are 3,102 stocks that are currently up by 10% or more during that same time; 1,685 stocks up by 20% or more; and 562 stocks up by 50% or more. The point is, now is the time to start building your dream portfolio. Because we will likely see a whole new crop of stocks up just as much or more in the next few months. And note, even when the market was falling in the first half of the year, there were hundreds of stocks up 10%, 20%, even 50% or more. Which means it's never a bad time to pick up good (and great) stocks. Increasing Your Odds Of Success Of course, picking winning stocks does require a degree of skill. If you keep looking at the wrong things to pick stocks with, you'll rarely if ever get into the right ones. But picking winning stocks is easier than you think. For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 28 of the last 34 years with an average annual return of 25% per year? That's more than 2 x the S&P with an annual win ratio of more than 82%. That includes 3 bear markets and 4 recessions. And did you know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true! Those two things will give any investor a huge probability of success and put you well on your way to beating the market. But you're not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once. So, the next step is to get that list down to the best 5-10 stocks that you can buy. Proven Profitable Strategies Picking the best stocks is a lot easier when there's a proven, profitable method to do it. And by concentrating on what has proven to work in the past, you'll have a better idea as to what your probability of success will be now and in the future. Of course, this won't preclude you from ever having another losing trade. But if your stock picking strategy picks winners more often than losers, you can feel confident that your next trade will have a high probability of success. Here are a few of my favorite strategies that have regularly crushed the market year after year. New Highs: Studies have shown that stocks making new highs have a tendency of making even higher highs. And this strategy proves it. The alignment of positive price action and strong fundamentals creates all the necessary conditions to see these stocks soar to even greater heights. Over the last 22 years (2000 through 2021), using a 1-week rebalance, the average annual return has been 43.2% vs. the S&P's 7.5%, which is 5.7 x the market. Small-Cap Growth: Small-caps have historically outperformed the market time and time again. Often these are newer companies in the early part of their growth cycle, which is when they grow the fastest. This strategy combines the aggressive growth of small-caps with our special blend of growth and valuation metrics for explosive returns. Over the last 22 years (2000 through 2021), using a 1-week rebalance, the average annual return has been 50.4%, beating the market by 6.7 x the returns. Filtered Zacks Rank 5: This strategy leverages the Zacks Rank #1 Strong Buys, and adds two time-tested filters to narrow the list of stocks down to five high probability picks each week. Over the last 22 years (2000 through 2021), using a 1-week rebalance, the average annual return has been 51.2%, which is 6.8 x the market. The best part about these strategies (aside from the returns) is that all of the testing and hard work has already been done. There's no guesswork involved. Just point and click and start getting into better stocks on your very next trade. Where To Start There's a simple way to add a big performance advantage for your stock-picking success. It's called the Zacks Method for Trading: Home Study Course. With this fun, interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don't have to attend a single class or seminar. Zacks Method for Trading covers the investment ideas I just shared and guides you to better trading step by step, plus so much more. You'll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed. You'll get the formulas behind our top-performing strategies suited for a variety of different trading styles. The best of these strategies produced gains up to +48.2%, +67.6% and even +95.3% in 2021.¹ The course will also help you create and test your own stock-picking strategies. Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every trading secret I've learned over the last 25 years to beat the market. Please note: Copies of the book are limited and your opportunity to get one free ends Saturday, September 17, unless we run out of books first. If you're interested, I encourage you to check this out now. Find out more about Zacks Method for Trading: Home Study Course » Thanks and good trading,
Zacks Executive VP Kevin Matras is responsible for all of our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course. | ||||
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| ¹ The results listed above are not (or may not be) representative of the performance of all strategies developed by Zacks Investment Research. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through August 1, 2022. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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