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Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research

Stocks Sharply Higher To Start The Week

Stocks closed sharply higher yesterday with the Dow, S&P and Nasdaq all up by more than 1.50%.

Stocks picked up where they left off on Friday after their spectacular turnaround. And they pulled away from last week's lows even more yesterday.

The same headwinds as before persist. Inflation, and what that means for interest rates, and the war on Ukraine, which is exacerbating high energy prices, continues to worry investors. So much so that some are expecting a recession, hence the protracted sell-off over the last few months.

But as I've mentioned before, the Fed taking action on interest rates is bullish since inflation is the biggest threat to the economy right now. And the sooner the Fed can tamp down inflation, the better.

Fed Chair, Jerome Powell, even went on record saying that because the economy is so strong, he believes it will "flourish in the face of less accommodative monetary policy."

As for recession, St. Louis Fed President, James Bullard, last Friday, said that he does not see a recession this year or next, and sees the economy growing by 2.5% to 3% this year. He qualified his statement saying that could change if there was a "really large shock" to the economy. But outside of that, he sees a "pretty good second half," driven by "strong consumption this year."

Now add that to falling stock prices and rising earnings estimates, and you have valuations at the lowest level in more than 2 years.

And after being so grossly oversold (the Dow just notched its 8th weekly loss in a row ? their longest losing streak in 90 years, while the S&P and Nasdaq recorded their 7th weekly loss in a row ? their longest losing streak in 21 years), the market is ripe for a significant bounce.

And when it looks like the worst case scenario will not come true (no recession after all), stocks could soar!

In the meantime, yesterday's up move was long overdue.

And given how lopsided (to the downside) this year has been, in spite of how strong the economy is, the market feels like its long overdue for several weeks worth of upside, just for starters.

See you tomorrow,

Kevin Matras

Executive Vice President, Zacks Investment Research


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