What's Happening Now with Stocks — And What to Expect Next
We're now six months into 2023, which is a good time to get an “investing pulse” on what we've seen in stocks, where we are now, and most importantly… what's next.
With so much “noise” out there — clogging the information pipeline — Jason's data-based and AI-enhanced system ignores the din and shows you what matters by:
Taking the emotion out of investing.
Accessing real-time information on what the uber-wealthy pros are buying and selling.
And eliminating the marginal companies to focus on those with real financial muscle.
And that's exactly what he provided when I got a chance to catch up with him. Let's jump right in…
Keith Kaplan: We came into the year facing the headwinds of inflation, the Fed hiking interest rates, decelerating earnings, recession worries, and more. We've mixed in such "new" ingredients as bank-deposit flight, a possible China slowdown, and a debt-ceiling deal that keeps kicking problems further down the road. And those are just the headlining factors.
KK: When you look across that landscape… I have to ask: What does this mean for stocks? Let's start with your outlook: What's your outlook for stocks in the next one to three months?
JB: It's a good question, Keith. And one worth asking. Especially since it seems like, these days, the market is full of people with very cloudy crystal balls.
I'm not a big 'outlook' guy myself. But when I am asked to make predictions, I always use historical data and precedent to talk about what's possible. So, with that disclaimer out of the way, let me get back to your question.
The good news is that you asked this question at a great time. That's because 'seasonality' is a real phenomenon in the stock market. Turns out that the adage “sell in May and go away” has some truth to it after all.
The chart below shows that (historically speaking) the May-through-September stretch can be the weakest:
KK: And do you expect that run to continue this year?
JB: I do, Keith. I envision lower liquidity, higher volatility, and choppy returns at best for at least a little bit longer.
KK: Okay, that covers the near-term outlook. Let's talk about the intermediate.
JB: History is on our side for a strong back part of this year and the beginning of next year.
And with the economy growing ever closer to a resolution on inflation and an end to interest-rate uncertainty, I expect we'll have more fuel for a 'Big Lift' (a stock market rally) in the back half of the year and the beginning of next year.
KK: That's great Jason. So… then… what's the long-term outlook?
JB: Long-term outlook? This is an easy one, Keith.
All you have to do is to look at a 100-year chart of stocks to know that it pays to be a long-term investor in stocks.
I can't think of any other investments that perform and grow the way stocks can.
Not a one.
If you need a yardstick for comparison for long-term investing, just look at Warren Buffett and how he massively grew his assets over many decades.
KK: You're a big believer in having a long-term focus with stocks…
JB: I am, Keith. I really am.
That said, not everybody has a multi-decade horizon.
And that's why it's also great to have short-term investing strategies.
A lot like those strategies found in my services, which allows investors to stack short-term wins repeatedly — an approach that will let them create great wealth over time.
KK: One of the most compelling factors you've spoken about is the huge amount of cash — a record $5.3 trillion — currently sitting on the sidelines… in money-market funds. That's a historic “extreme.” Is that also an 'inflection point' for stocks? And if that's the case, what's the 'trigger' that makes that happen?
JB: That is a terrific question.
I was recently looking at the market's low liquidity levels. There's just not a ton of volume being traded, which helps open the door for some of that volatility we've been experiencing.
What could explain that?
Well, one answer is that a lot of cash left the market during last year's big slide in stocks — and just hasn't come back, yet.
That makes sense, fundamentally, since uncertainty is “Enemy No. 1” for investors.
KK: And we all know there's a ton of uncertainty right now.
JB: That's right. And that's why we've got that pile of cash… that $5.3 trillion… sitting out there.
Now, here's where it gets interesting. To your point: What could trigger an inflow into stocks of all that money?
I think it's what we just discussed: A little less uncertainty. The Fed recently signaled that it's close — or maybe just plain done — raising interest rates to combat inflation.
As inflation improves and rates stabilize, the stomach-churning anxiety over what the Fed will do next goes away.
Also, to note, the 'earnings apocalypse' so many pundits called for and expected just hasn't materialized.
Just the opposite, in fact.
First-quarter earnings season just wrapped — with the data from May showing 78% of companies beat earnings expectations.
JB: Hardly is right. While companies have been guiding lower to temper expectations, a company only has to beat the estimates that they set to gain a rosier outlook the next time they report earnings.
Look at what just happened with Nvidia Corp. (NVDA).
It beat forecasts and the CEO offered impressive guidance — and the stock exploded higher. More moves like that may start to cause the fear of missing out (FOMO) among more retail investors.
And, let me tell you, FOMO is downright contagious.
Get a few of these going and the dam will break… and cash will flood into stocks in a way I suspect will catch many off-guard. Which, in turn, will ignite more buying.
KK: Let's stay with that thought… with that topic — risk. What are the risks we face as investors right now? What are the key “don't do this” mistakes to avoid?
JB: Again, Keith, I think the biggest risk — mistake — is for an investor to be so worried about losing money that he or she sits the market out.
I understand the sentiment. I truly do. Especially when markets are under pressure as they are right now.
But here's what you really need to consider: If you look at the long-term, 100-year trend of stocks, what you see is that the best times to be involved are usually when it feels the worst to be invested.
KK: What you're saying, Jason, is that, over the long haul, the returns are best when it feels the worst?
JB: That's it, Keith. 'Waiting it out' feels good — and lets you sleep at night — but also ensures that you miss out when the market finally turns.
That's the first mistake.
The second mistake, I believe, is holding forever. The stock market today is simply not the same as when your grandfather or dad were investing. Of course, there potentially are certain stocks to buy and hold forever.
But with the advent of high-frequency trading and a lot of short-term gyrations, it seems prudent to be more flexible with your time horizon. My whole approach is based on identifying which stocks will climb higher by using the trading of Big Money investors as our clues. I mentioned 'stacking wins' earlier, and that's exactly the strategy in both of my Quantum Edge services.
Our system identifies stocks that have a high probability of beating the broader market. We buy those, and we don't become emotionally attached. We add generous risk limits that are designed to trail and protect profit and mitigate loss.
This method — versus the “buy-and-hold-with-a-dash-of-prayer” approach is a better way to avoid mistakes while allowing investors to stay active and profitable during tough times for the market.
Editor's Note: This is Part 1 of Keith's interview with Jason, with Part 2 hitting your inbox tomorrow morning. In Part 2, Jason will share what moves to make with all of this insight in mind, as well as provide a sector — and companies within that sector – that he is bullish on.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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