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It appears investors can breathe a sigh of relief in April and avoid the showers.
Following last year’s bear market, the bulls have made a stand this year with the Nasdaq leading the charge. The month of April normally gives investors reasons to feel cheerful, but the bullish part of the calendar carries extra weight this year. As illustrated below, in pre-election years April typically experiences very strong returns and has rarely lost ground.
Image Source: Zacks Investment Research
Here’s another stat to keep the bulls feeling hopeful (and not just for April). When the S&P 500 falls more than 25% peak to trough in the previous year (as was the case in 2022), the following year has historically witnessed abnormally large returns. As we can see below, greater than 25% bear markets have witnessed a 38% average return the following year, which has been higher nearly 89% of the time across 9 previous instances.
Image Source: Zacks Investment Research
And while a host of concerns remain in the current investment environment, markets are forward-looking and have likely priced in much of the downside associated with these worries. As the saying goes, bull markets climb a wall of worry. With the start to the year we’ve had thus far, it certainly appears that history will rhyme.
Technology Divergence
Technology tends to underperform in bear markets and outperform in bull markets. That’s undoubtedly been the case between this year and last. The Invesco Nasdaq 100 ETF (QQQM - Free Report) has been outperforming this year as technology comes back to the forefront. QQQM seeks to track the investment results of the Nasdaq 100 Index and contains many of the top technology companies in the world.
The Invesco Nasdaq 100 ETF also holds the highly-ranked stock we will discuss below. As shown here, the QQQM ETF has bounced back this year and is already up nearly 20%:
Image Source: StockCharts
Within the technology sector, the Zacks Semiconductor – General industry has returned nearly 60% year-to-date, handily outpacing the market. This industry is currently ranked in the top 30% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. Take a look at how this group has steadily outperformed this year:
Image Source: Zacks Investment Research
Quantitative research studies suggest about half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By targeting stocks contained within leading industry groups, we can dramatically improve our odds of success.
Let’s peel back the curtain on a top holding within this group as well as the QQQM ETF that has seen positive earnings estimate revision activity in recent weeks.
NVIDIA provides graphics along with compute and networking solutions globally. The company offers solutions for gaming platforms, enterprise workstations, software for cloud-based virtual computing and 3-D design, and automotive platforms for infotainment systems. NVIDIA also provides data center platforms and systems for use in artificial intelligence, autonomous driving, accelerated computing, cryptocurrency mining, and robotics.
As one of the leading AI companies, NVIDIA has also been at the forefront of the ChatGPT conversation, as the company headlines the graphics chips that are designed for complex computing applications. NVDA, currently a Zacks Rank #2 (Buy) stock, has surged more than 88% this year.
Image Source: StockCharts
NVDA looks to resume what was a long history of earnings beats, as the company reported better-than-expected results for the fourth quarter. Earnings of $0.88/share beat the Zacks Consensus Estimate by 8.6%. The stock has moved steadily higher since the announcement.
Analysts have revised their estimates for full-year earnings by 2.52% over the past 60 days. The Zacks Consensus Estimate now stands at $4.48/share, reflecting potential growth of 34.13% relative to last year. Revenues are anticipated to grow 9.78% to $29.61 billion.
Image Source: Zacks Investment Research
The positive seasonality and technology outperformance bodes well for continued strength in semiconductors. Make sure to keep an eye on NVDA, a leader in this group.
Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.
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Positive Seasonality, Tech Outperformance: Bull Market Underway?
It appears investors can breathe a sigh of relief in April and avoid the showers.
Following last year’s bear market, the bulls have made a stand this year with the Nasdaq leading the charge. The month of April normally gives investors reasons to feel cheerful, but the bullish part of the calendar carries extra weight this year. As illustrated below, in pre-election years April typically experiences very strong returns and has rarely lost ground.
Image Source: Zacks Investment Research
Here’s another stat to keep the bulls feeling hopeful (and not just for April). When the S&P 500 falls more than 25% peak to trough in the previous year (as was the case in 2022), the following year has historically witnessed abnormally large returns. As we can see below, greater than 25% bear markets have witnessed a 38% average return the following year, which has been higher nearly 89% of the time across 9 previous instances.
Image Source: Zacks Investment Research
And while a host of concerns remain in the current investment environment, markets are forward-looking and have likely priced in much of the downside associated with these worries. As the saying goes, bull markets climb a wall of worry. With the start to the year we’ve had thus far, it certainly appears that history will rhyme.
Technology Divergence
Technology tends to underperform in bear markets and outperform in bull markets. That’s undoubtedly been the case between this year and last. The Invesco Nasdaq 100 ETF (QQQM - Free Report) has been outperforming this year as technology comes back to the forefront. QQQM seeks to track the investment results of the Nasdaq 100 Index and contains many of the top technology companies in the world.
The Invesco Nasdaq 100 ETF also holds the highly-ranked stock we will discuss below. As shown here, the QQQM ETF has bounced back this year and is already up nearly 20%:
Image Source: StockCharts
Within the technology sector, the Zacks Semiconductor – General industry has returned nearly 60% year-to-date, handily outpacing the market. This industry is currently ranked in the top 30% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. Take a look at how this group has steadily outperformed this year:
Image Source: Zacks Investment Research
Quantitative research studies suggest about half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By targeting stocks contained within leading industry groups, we can dramatically improve our odds of success.
Let’s peel back the curtain on a top holding within this group as well as the QQQM ETF that has seen positive earnings estimate revision activity in recent weeks.
NVIDIA Inc. (NVDA - Free Report)
NVIDIA provides graphics along with compute and networking solutions globally. The company offers solutions for gaming platforms, enterprise workstations, software for cloud-based virtual computing and 3-D design, and automotive platforms for infotainment systems. NVIDIA also provides data center platforms and systems for use in artificial intelligence, autonomous driving, accelerated computing, cryptocurrency mining, and robotics.
As one of the leading AI companies, NVIDIA has also been at the forefront of the ChatGPT conversation, as the company headlines the graphics chips that are designed for complex computing applications. NVDA, currently a Zacks Rank #2 (Buy) stock, has surged more than 88% this year.
Image Source: StockCharts
NVDA looks to resume what was a long history of earnings beats, as the company reported better-than-expected results for the fourth quarter. Earnings of $0.88/share beat the Zacks Consensus Estimate by 8.6%. The stock has moved steadily higher since the announcement.
Analysts have revised their estimates for full-year earnings by 2.52% over the past 60 days. The Zacks Consensus Estimate now stands at $4.48/share, reflecting potential growth of 34.13% relative to last year. Revenues are anticipated to grow 9.78% to $29.61 billion.
Image Source: Zacks Investment Research
The positive seasonality and technology outperformance bodes well for continued strength in semiconductors. Make sure to keep an eye on NVDA, a leader in this group.
Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.