It’s been a rough year so far.
But things may finally be starting to look up, despite today’s (Wednesday’s) pullback.
What I mean is this -- last week on Thursday, 5/12/22, the major indexes appeared to have put in their correction lows.
While the Nasdaq entered bear market territory back in March, the Dow and the S&P never did.
From their highest close to last Thursday’s intraday low, the Nasdaq, at its worst, was down by -29.19%. But the Dow was only down -15.14%. And the S&P was down by -19.55% before bouncing off their low.
What was so interesting on that day was that the S&P, unlike other sell-off days, didn’t trade lower in a panic-induced plunge. Instead, it seemed to go down in a slow and measured way. And as it got closer to the -20% mark, it almost seemed like it was ticking down ever so gingerly. Almost like the index didn’t want to break that threshold.
Even if you measure the decline from its all-time high, rather than its all-time high close, the S&P still never broke -20%, as it ‘only’ got as low as -19.92%.
And then, within the last 15 minutes of trading, the S&P came off their lows, which was down as much as -1.94% intraday, to finish down by only -0.13%.
Then on Friday, the market picked up where it left off, opening higher and building on those gains. By the close, the S&P was up 2.39%.
After coming as close as you could to -20% (bear market territory), the S&P promptly turned around and staged a comeback. And by week’s end, that put the decline from its all-time high close at ‘just’ -16.10%.
Unfortunately, the volatility has not gone away. And this week has so far seen big up days and big down days.
But last week’s rally from the lows was still stunning.
And in spite of today’s pullback, those lows are still holding.
So, was last Thursday’s low the bottom? At least for the short-term? Or was it the bottom, period? Or was it just a head fake before it goes down even lower?
Only time will tell.
But the market was terribly oversold, and long overdue for some positive price action.
Continued . . .
------------------------------------------------------------------------------------------------------
Get Your Free Copy of Finding #1 Stocks – A $49.95 Value
One single idea changed Kevin Matras' life as an investor, enabling him to tap into the greatest force driving stock prices. In Finding #1 Stocks, Kevin reveals his top stock-picking secrets and strategies based on this powerful idea. Now you can claim a free copy of the 300-page hardcover book.
In 2021 - while the market climbed +28.8% - these strategies actually produced gains up to +48.2%, +67.6%, and even +95.3%.¹
You can take full advantage of them without attending a single class or seminar, in a lot less time than you think. Opportunity ends Saturday, May 21.
Get your free book now >>
------------------------------------------------------------------------------------------------------
Inflation and Interest Rates
Inflation and rising interest rates continue to grip the market.
Inflation, for example, is likely to stay elevated for quite some time. But last week’s CPI and PPI reports, while still showing inflation at roughly 40-year highs, did tick down from the previous month. And that’s a step in the right direction.
Interest rates are on the rise. But given inflation, that’s a good thing.
The Fed first raised interest rates back on March 16th (the first hike in more than 3 years), with a quarter-point increase. Investors cheered the move since many felt the Fed let inflation run too hot for too long. And there was relief that the move to combat inflation had finally begun.
The next move came on May 4th with a 50 basis point increase.
And the Fed has already telegraphed that they are poised to raise rates another 50 basis points at each of their next two FOMC meetings in June and July.
Of course, some worry that raising rates too high, too quickly, could slow the economy down too much.
But a slowing economy has not been an issue. Just the opposite. It’s been too hot. And that’s partly why inflation has gotten so bad.
Quite frankly, the bigger risk is not raising enough, and going too slowly.
And that’s why the upcoming hikes should be seen as bullish.
In fact, according to Fed Chair, Jerome Powell, the economy should “flourish in the face of less accommodative monetary policy.”
Taking some of the excess out of the economy, which in turn can help tamp down inflation, could go a long way to help elongate the current economic expansion that we are in.
All in all, the Fed has forecast that rates could get as high as 1.9% by year’s end. They also predicted the Fed Funds rate could reach 2.8% by the end of 2023, with no further rate hikes in 2024.
Moreover, they’re expecting PCE inflation to come in at 4.3% by year’s end, 2.7% in 2023, and 2.3% in 2024.
And they are forecasting GDP growth at 2.8% this year, 2.2% in 2023, and 2.0% in 2024.
Simply put, by raising rates as outlined above, they see inflation finally coming down, and sustainable growth to continue.
And rates will still be relatively low.
This is important because some out there worry that raising rates will cause a recession.
But history has shown that over the last 50 years, there’s never been a recession (aside from 2020’s pandemic-induced plunge), when the Fed Funds rate was under 4%.
And with officials suggesting rates will not exceed 2.8% (by the end of 2023 and all of 2024), that’s a far cry from 4%.
Oil Prices And The War On Ukraine
High oil prices have also been adding to concerns.
But $100 a barrel oil doesn’t automatically spell doom for the economy.
In fact, oil traded above $100 in 2011, 2012, 2013, and 2014, all while GDP averaged over 2.0% during that time.
Demand for oil is strong, especially as the world continues to reopen its economies after the pandemic.
During the pandemic, when demand fell, prices cratered, and production fell as well.
But now that demand is up, prices have followed suit. Production is still playing catch-up. But producers virtually everywhere are racing to increase production.
Especially since much of the world has either cut-off, or is in the process of trying to cut-off its dependence on Russian oil due to their invasion of Ukraine.
That shortfall will have to be made up somewhere. And producers are vying to gain that new market share.
A meaningful increase in production won’t happen overnight, but it will happen. And prices will eventually come down, like they always do.
As the saying goes, ‘the cure for high prices is high prices.’ And the high prices will bring in the much needed increase in production that ultimately sends prices lower.
Back To Business
Throughout it all, the economy remains resilient.
In the Fed’s own words, the economy remains “really strong,” “consumer demand is very strong,” and “incomes are very strong.”
And the labor market is “extremely tight.”
With the unemployment rate at near 50-year lows, and with literally millions more jobs available than there are unemployed people to fill them, it looks like the strength of the labor market will continue well into the future.
Let’s also not forget that the recent sell-off has lowered stock valuations to levels we haven’t seen in over 2 years (April 2020), which is helping to make stocks look exceptionally cheap given the growth forecast.
And traders have wasted no time in snapping up bargains. And neither should you.
I know pullbacks and corrections aren’t fun when they are happening. But they are common occurrences.
Unfortunately, too many investors panic when they happen.
Some sell. Others short. And some refuse to buy for fear of it going lower.
But then the market snaps back. And stocks race higher, leaving them behind.
This happens time and time again.
But if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell.
Because it looks like there’s a lot more upside to go.
Do What Works
So how do you fully take advantage of the market right now?
By implementing tried and true methods that work to find the best stocks.
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 (an 82% win ratio) with an average annual return of 25% per year? That's more than 2 x the S&P. And consistently beating the market year after year can add up to a lot more than just two times the returns.
And did you also 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.
For example, if your strategy did nothing but lose money year after year, trade after trade, over and over again, there’s no way you'd want to use that strategy to pick stocks with. Why? Because it's proven to pick bad stocks.
On the other hand, if your strategy did great year after year, trade after trade, over and over again, you'd of course want to use that strategy to pick stocks with. Why? Because it's proven to pick winning stocks.
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: As mentioned earlier, 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, May 21, 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,
Kevin
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.
¹ The results listed above are not (or may not be) representative of the performance of all strategies developed by Zacks Investment Research.
Image: Bigstock
Did The Market Finally Hit Bottom?
It’s been a rough year so far.
But things may finally be starting to look up, despite today’s (Wednesday’s) pullback.
What I mean is this -- last week on Thursday, 5/12/22, the major indexes appeared to have put in their correction lows.
While the Nasdaq entered bear market territory back in March, the Dow and the S&P never did.
From their highest close to last Thursday’s intraday low, the Nasdaq, at its worst, was down by -29.19%. But the Dow was only down -15.14%. And the S&P was down by -19.55% before bouncing off their low.
What was so interesting on that day was that the S&P, unlike other sell-off days, didn’t trade lower in a panic-induced plunge. Instead, it seemed to go down in a slow and measured way. And as it got closer to the -20% mark, it almost seemed like it was ticking down ever so gingerly. Almost like the index didn’t want to break that threshold.
Even if you measure the decline from its all-time high, rather than its all-time high close, the S&P still never broke -20%, as it ‘only’ got as low as -19.92%.
And then, within the last 15 minutes of trading, the S&P came off their lows, which was down as much as -1.94% intraday, to finish down by only -0.13%.
Then on Friday, the market picked up where it left off, opening higher and building on those gains. By the close, the S&P was up 2.39%.
After coming as close as you could to -20% (bear market territory), the S&P promptly turned around and staged a comeback. And by week’s end, that put the decline from its all-time high close at ‘just’ -16.10%.
Unfortunately, the volatility has not gone away. And this week has so far seen big up days and big down days.
But last week’s rally from the lows was still stunning.
And in spite of today’s pullback, those lows are still holding.
So, was last Thursday’s low the bottom? At least for the short-term? Or was it the bottom, period? Or was it just a head fake before it goes down even lower?
Only time will tell.
But the market was terribly oversold, and long overdue for some positive price action.
Continued . . .
------------------------------------------------------------------------------------------------------
Get Your Free Copy of Finding #1 Stocks – A $49.95 Value
One single idea changed Kevin Matras' life as an investor, enabling him to tap into the greatest force driving stock prices. In Finding #1 Stocks, Kevin reveals his top stock-picking secrets and strategies based on this powerful idea. Now you can claim a free copy of the 300-page hardcover book.
In 2021 - while the market climbed +28.8% - these strategies actually produced gains up to +48.2%, +67.6%, and even +95.3%.¹
You can take full advantage of them without attending a single class or seminar, in a lot less time than you think. Opportunity ends Saturday, May 21.
Get your free book now >>
------------------------------------------------------------------------------------------------------
Inflation and Interest Rates
Inflation and rising interest rates continue to grip the market.
Inflation, for example, is likely to stay elevated for quite some time. But last week’s CPI and PPI reports, while still showing inflation at roughly 40-year highs, did tick down from the previous month. And that’s a step in the right direction.
Interest rates are on the rise. But given inflation, that’s a good thing.
The Fed first raised interest rates back on March 16th (the first hike in more than 3 years), with a quarter-point increase. Investors cheered the move since many felt the Fed let inflation run too hot for too long. And there was relief that the move to combat inflation had finally begun.
The next move came on May 4th with a 50 basis point increase.
And the Fed has already telegraphed that they are poised to raise rates another 50 basis points at each of their next two FOMC meetings in June and July.
Of course, some worry that raising rates too high, too quickly, could slow the economy down too much.
But a slowing economy has not been an issue. Just the opposite. It’s been too hot. And that’s partly why inflation has gotten so bad.
Quite frankly, the bigger risk is not raising enough, and going too slowly.
And that’s why the upcoming hikes should be seen as bullish.
In fact, according to Fed Chair, Jerome Powell, the economy should “flourish in the face of less accommodative monetary policy.”
Taking some of the excess out of the economy, which in turn can help tamp down inflation, could go a long way to help elongate the current economic expansion that we are in.
All in all, the Fed has forecast that rates could get as high as 1.9% by year’s end. They also predicted the Fed Funds rate could reach 2.8% by the end of 2023, with no further rate hikes in 2024.
Moreover, they’re expecting PCE inflation to come in at 4.3% by year’s end, 2.7% in 2023, and 2.3% in 2024.
And they are forecasting GDP growth at 2.8% this year, 2.2% in 2023, and 2.0% in 2024.
Simply put, by raising rates as outlined above, they see inflation finally coming down, and sustainable growth to continue.
And rates will still be relatively low.
This is important because some out there worry that raising rates will cause a recession.
But history has shown that over the last 50 years, there’s never been a recession (aside from 2020’s pandemic-induced plunge), when the Fed Funds rate was under 4%.
And with officials suggesting rates will not exceed 2.8% (by the end of 2023 and all of 2024), that’s a far cry from 4%.
Oil Prices And The War On Ukraine
High oil prices have also been adding to concerns.
But $100 a barrel oil doesn’t automatically spell doom for the economy.
In fact, oil traded above $100 in 2011, 2012, 2013, and 2014, all while GDP averaged over 2.0% during that time.
Demand for oil is strong, especially as the world continues to reopen its economies after the pandemic.
During the pandemic, when demand fell, prices cratered, and production fell as well.
But now that demand is up, prices have followed suit. Production is still playing catch-up. But producers virtually everywhere are racing to increase production.
Especially since much of the world has either cut-off, or is in the process of trying to cut-off its dependence on Russian oil due to their invasion of Ukraine.
That shortfall will have to be made up somewhere. And producers are vying to gain that new market share.
A meaningful increase in production won’t happen overnight, but it will happen. And prices will eventually come down, like they always do.
As the saying goes, ‘the cure for high prices is high prices.’ And the high prices will bring in the much needed increase in production that ultimately sends prices lower.
Back To Business
Throughout it all, the economy remains resilient.
In the Fed’s own words, the economy remains “really strong,” “consumer demand is very strong,” and “incomes are very strong.”
And the labor market is “extremely tight.”
With the unemployment rate at near 50-year lows, and with literally millions more jobs available than there are unemployed people to fill them, it looks like the strength of the labor market will continue well into the future.
Let’s also not forget that the recent sell-off has lowered stock valuations to levels we haven’t seen in over 2 years (April 2020), which is helping to make stocks look exceptionally cheap given the growth forecast.
And traders have wasted no time in snapping up bargains. And neither should you.
I know pullbacks and corrections aren’t fun when they are happening. But they are common occurrences.
Unfortunately, too many investors panic when they happen.
Some sell. Others short. And some refuse to buy for fear of it going lower.
But then the market snaps back. And stocks race higher, leaving them behind.
This happens time and time again.
But if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell.
Because it looks like there’s a lot more upside to go.
Do What Works
So how do you fully take advantage of the market right now?
By implementing tried and true methods that work to find the best stocks.
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 (an 82% win ratio) with an average annual return of 25% per year? That's more than 2 x the S&P. And consistently beating the market year after year can add up to a lot more than just two times the returns.
And did you also 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.
For example, if your strategy did nothing but lose money year after year, trade after trade, over and over again, there’s no way you'd want to use that strategy to pick stocks with. Why? Because it's proven to pick bad stocks.
On the other hand, if your strategy did great year after year, trade after trade, over and over again, you'd of course want to use that strategy to pick stocks with. Why? Because it's proven to pick winning stocks.
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: As mentioned earlier, 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, May 21, 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,
Kevin
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.
¹ The results listed above are not (or may not be) representative of the performance of all strategies developed by Zacks Investment Research.