After a stellar run-up last year, this year got off to a rough start.
Rising inflation weighed on prices early.
And then the war on Ukraine, which exacerbated already high energy prices, only made it worse.
While historically, stocks actually perform well during times of conflict, the present uncertainty over whether this will turn into a larger conflict beyond Russia and Ukraine has unnerved the market.
As such, all of the major indexes have fallen into correction territory.
But what’s important to know is that pullbacks and corrections are common.
Every bull market has them.
In fact, stocks usually pull back about -5% roughly 3-4 times per year. (A pullback is defined as a decline between -5% and -9.99%.)
And we saw roughly 3 pullbacks last year for the Dow and the S&P, all while the markets went up 18.7% and 26.9% respectively.
Stocks usually correct -10% on average about once a year. (A decline of -10% to -19.99% is called a correction.)
And we saw that with the Nasdaq last year too, while finishing up 21.4%.
But these are the pauses that refresh before the next leg up.
Now the markets are at it again.
While pullbacks and corrections are never fun when they’re happening, if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell.
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, March 19.
Get your free book now >>
------------------------------------------------------------------------------------------------------
At Its Worst
The Dow, at its worst (using their all-time high close in January, to their lowest close from just last week), was down -11.3%. The S&P was down -13.1%. And the Nasdaq (from their all-time high close, which was made in November of last year, to their lowest close, which was on Monday, 3/14/22), was down -21.7%.
A decline of -20% or more is the official definition of a bear market. Those happen about once every 4½ to 5 years.
Although, bear markets typically coincide with recessions (defined as two quarters in a row of negative GDP), and the economy remains strong.
The major indexes all bounced higher on Tuesday and Wednesday, and are now down ‘just’ -7.44% for the Dow, -9.15% for the S&P, and -16.2% for the Nasdaq.
Recession?
Some are speculating that we could be on the cusp of a recession.
Anything is possible. But at the moment, that does not seem to be the case.
That’s because the economy is just too strong right now. That includes an exceptionally strong labor market, strong household income, and strong consumer demand.
And don’t forget, recessions mean two quarters in a row of negative GDP.
Full-year GDP for 2021, just came in at the fastest growth rate in 37 years. And GDP for 2022 is projected at 2.8%, with 2023 at 2.2%.
True, higher energy prices have recently trimmed those forecasts down a bit.
But lesser growth is not the same as a contraction.
Plus, even with the Fed raising the Fed Funds rate by 25 basis points on Wednesday, interest rates remain near historically low levels.
And while the Fed is expected to raise rates a handful more times this year, possibly getting to 1.9% or so by year’s end, it would still put rates at historically low levels.
This is important to know because 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%.
So at quarter-point moves (even half-point moves), it would take years to get to that level.
And with officials suggesting rates could hit 2.8% in 2023, and remain at 2.8% in 2024, meaning no further rate hikes, (which in total is almost three full years from now), that’s still a far cry from 4%.
Stagflation?
Some have also speculated that we could see stagflation.
Stagflation is marked by high inflation, but also high unemployment, and low growth or ‘stagnant’ growth, hence the word stagflation.
We definitely have high inflation, that’s for sure.
In fact, inflation is now at 40-year highs.
And while oil is above $100 a barrel, that doesn’t automatically spell doom for the economy.
In fact, it traded above $100 in 2011, 2012, 2013, and 2014, all while GDP averaged over 2.0% during that time.
But again, in addition to high inflation (check), stagflation also needs to see high unemployment, and low growth.
But unemployment is extremely strong. There are literally millions more jobs available than there are unemployed people to fill them. So, employment looks like it will remain strong for the foreseeable future.
And growth also looks strong. Especially with Omicron cases dropping in the U.S. and Covid lockdowns being lifted. The amount of pent-up economic demand is poised to lift GDP and potentially usher in a multiyear boom.
All three of those conditions for stagflation matter. Not one or some, but all. And that’s what can help investors distinguish between normal corrections (no matter how ‘un-normal’ they feel), where one should look to buy, and a decline where one should look to sell.
Riding the Bull
While the markets are in correction mode, there’s nothing wrong with raising cash by getting out of your laggards and poorest performers -- stocks you know you should have gotten out of long before this decline even happened.
But then replacing them with the strongest stocks that will be the new market leaders.
You don’t have to go all in at once. But you can start taking nibbles at these discounted prices.
That’s true for your favorite stocks. As well as plenty of new stocks that you may not have even heard of yet.
But the time to get ready for the next leg up is now.
Do What Works
So how do you fully take advantage of this correction, and not squander this opportunity with preventable mistakes?
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 with an average annual return of 25.4% per year? That's nearly 2.5 x the S&P. But when doing this year after year, that can add up to a lot more than just two and a half 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: 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
Now that the economic recovery is in full swing, 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, March 19, 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 selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.
Image: Bigstock
Bull Markets, Corrections, Recession And Stagflation
After a stellar run-up last year, this year got off to a rough start.
Rising inflation weighed on prices early.
And then the war on Ukraine, which exacerbated already high energy prices, only made it worse.
While historically, stocks actually perform well during times of conflict, the present uncertainty over whether this will turn into a larger conflict beyond Russia and Ukraine has unnerved the market.
As such, all of the major indexes have fallen into correction territory.
But what’s important to know is that pullbacks and corrections are common.
Every bull market has them.
In fact, stocks usually pull back about -5% roughly 3-4 times per year. (A pullback is defined as a decline between -5% and -9.99%.)
And we saw roughly 3 pullbacks last year for the Dow and the S&P, all while the markets went up 18.7% and 26.9% respectively.
Stocks usually correct -10% on average about once a year. (A decline of -10% to -19.99% is called a correction.)
And we saw that with the Nasdaq last year too, while finishing up 21.4%.
But these are the pauses that refresh before the next leg up.
Now the markets are at it again.
While pullbacks and corrections are never fun when they’re happening, if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell.
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, March 19.
Get your free book now >>
------------------------------------------------------------------------------------------------------
At Its Worst
The Dow, at its worst (using their all-time high close in January, to their lowest close from just last week), was down -11.3%. The S&P was down -13.1%. And the Nasdaq (from their all-time high close, which was made in November of last year, to their lowest close, which was on Monday, 3/14/22), was down -21.7%.
A decline of -20% or more is the official definition of a bear market. Those happen about once every 4½ to 5 years.
Although, bear markets typically coincide with recessions (defined as two quarters in a row of negative GDP), and the economy remains strong.
The major indexes all bounced higher on Tuesday and Wednesday, and are now down ‘just’ -7.44% for the Dow, -9.15% for the S&P, and -16.2% for the Nasdaq.
Recession?
Some are speculating that we could be on the cusp of a recession.
Anything is possible. But at the moment, that does not seem to be the case.
That’s because the economy is just too strong right now. That includes an exceptionally strong labor market, strong household income, and strong consumer demand.
And don’t forget, recessions mean two quarters in a row of negative GDP.
Full-year GDP for 2021, just came in at the fastest growth rate in 37 years. And GDP for 2022 is projected at 2.8%, with 2023 at 2.2%.
True, higher energy prices have recently trimmed those forecasts down a bit.
But lesser growth is not the same as a contraction.
Plus, even with the Fed raising the Fed Funds rate by 25 basis points on Wednesday, interest rates remain near historically low levels.
And while the Fed is expected to raise rates a handful more times this year, possibly getting to 1.9% or so by year’s end, it would still put rates at historically low levels.
This is important to know because 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%.
So at quarter-point moves (even half-point moves), it would take years to get to that level.
And with officials suggesting rates could hit 2.8% in 2023, and remain at 2.8% in 2024, meaning no further rate hikes, (which in total is almost three full years from now), that’s still a far cry from 4%.
Stagflation?
Some have also speculated that we could see stagflation.
Stagflation is marked by high inflation, but also high unemployment, and low growth or ‘stagnant’ growth, hence the word stagflation.
We definitely have high inflation, that’s for sure.
In fact, inflation is now at 40-year highs.
And while oil is above $100 a barrel, that doesn’t automatically spell doom for the economy.
In fact, it traded above $100 in 2011, 2012, 2013, and 2014, all while GDP averaged over 2.0% during that time.
But again, in addition to high inflation (check), stagflation also needs to see high unemployment, and low growth.
But unemployment is extremely strong. There are literally millions more jobs available than there are unemployed people to fill them. So, employment looks like it will remain strong for the foreseeable future.
And growth also looks strong. Especially with Omicron cases dropping in the U.S. and Covid lockdowns being lifted. The amount of pent-up economic demand is poised to lift GDP and potentially usher in a multiyear boom.
All three of those conditions for stagflation matter. Not one or some, but all. And that’s what can help investors distinguish between normal corrections (no matter how ‘un-normal’ they feel), where one should look to buy, and a decline where one should look to sell.
Riding the Bull
While the markets are in correction mode, there’s nothing wrong with raising cash by getting out of your laggards and poorest performers -- stocks you know you should have gotten out of long before this decline even happened.
But then replacing them with the strongest stocks that will be the new market leaders.
You don’t have to go all in at once. But you can start taking nibbles at these discounted prices.
That’s true for your favorite stocks. As well as plenty of new stocks that you may not have even heard of yet.
But the time to get ready for the next leg up is now.
Do What Works
So how do you fully take advantage of this correction, and not squander this opportunity with preventable mistakes?
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 with an average annual return of 25.4% per year? That's nearly 2.5 x the S&P. But when doing this year after year, that can add up to a lot more than just two and a half 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: 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
Now that the economic recovery is in full swing, 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, March 19, 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 selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.