After a strong run to start the year, markets have pulled back over the last couple of weeks and many investors are already anticipating the worst.
With mixed signals from inflation, shifting interest rate policy expectations, rising geopolitical tension and the upcoming Presidential election there are some uncertain factors on the horizon. But is it really time to be cautious?
I would argue no, it isn’t a time to be fearful – and in fact it is probably a good time to be tactically bullish and maybe even a little greedy.
There is a litany of factors that should drive this market higher over the next couple of years, and a medium-term pause amid a strong uptrend is a tactically advantageous moment in the market.
Seasonality trends suggest that the next 1-2 months could be marked by higher volatility and choppy sideways action, which should continue to shake the weak hands from good stocks. The more bearish the news gets, and the more weary investors become during this period, the richer the opportunities.
By focusing on secular economic trends leading the market and owning the best stocks as identified by the Zacks Rank, the rest of the year may be extremely profitable.
Don’t miss the forest for the trees – long-term bullish factors paired with near-term uncertainty is creating a truly exceptional opportunity for investors who can step up to the occasion.
Let’s discuss the positive developments so you don’t get caught up in the bearish news. Then we’ll cover how to find the big winning stocks.
Robust Economy
The strength of the US economy continues to surprise to the upside, with the labor market remaining persistently strong, and GDP growing above trend.
Estimates from the Federal Reserve Bank of Atlanta are currently for annual GDP growth of 2.9%. Additionally, just two weeks ago the IMF raised their global growth forecast to 3.2%, up from January’s forecast of 3.1% and driven by US economic strength.
They gave the US the biggest upside revision, raising their growth forecast to 2.7% from the previous estimate of 2.1%.
Unemployment is also pinned to lower levels. Even after two years of extremely restrictive monetary policy the unemployment rate is still just 3.8%.
Analysts have unsuccessfully been forecasting rising unemployment for most of the last two years, and now that we are approaching expansionary policy it seems the dire rise may never come.
Furthermore, the US household balance sheets are as secure as they have been in decades. Mortgage payments as a percentage of disposable income are below 10%, the lowest level going back to 1980, and household wealth just registered new all-time highs of $150 trillion.
Excess disposable income, along with the wealth effect will continue to drive consumer spending, and household leverage eliminates systemic risk.
Rate Cuts are Coming
The Federal Reserve is very close to changing their policy outlook, shifting from high interest rates and restrictive monetary policy to cutting rates and increasing liquidity. Lower rates will increase lending and spending, and likely power the stock market higher.
While the most recent data has shown a slight uptick in inflation, which has pushed rate cut expectations farther out in the future, they are still very likely cutting this year. Furthermore, there has been limited data showing that inflation is picking up and the disinflationary trend has been persistent over the last year.
So, unless the data shows inflation continuing to rise materially, the rate cut expectations could quickly reverse, and may still arrive within the next few months.
Along with earnings growth, liquidity is the most influential factor moving markets. Increasing liquidity has a strong correlation with higher stock and asset prices.
Continued . . .
------------------------------------------------------------------------------------------------------
Ultimate Access Is Only $1
Starting today, for one month, you are invited to see the real-time buys and sells from all our private portfolios for only $1. And you won't be obligated to spend another cent.
These portfolios closed 228 double and triple-digit gains last year and already 88 more in 2024. While not all our picks are winners, members saw gains of +129.3%, +200.3%, +319.3% and even +475.0%.¹
When you start your $1 trial, you can also download our just-released Ultimate Four report. Don’t miss out. Special opportunity ends at midnight Sunday, April 28.
See Our “Ultimate” Stocks Now >>
------------------------------------------------------------------------------------------------------
Infrastructure and Fiscal Spending
We covered monetary policy, but what about the fiscal side?
For better or worse the US government has been very liberal with spending and is running a significant deficit. And while I can sympathize with the fiscal hawks and their concern for excessive deficit spending, a lot of it is going to a good cause.
Between the Inflation Reduction Act and the Chips Act, there is a huge amount of money being injected into exciting and necessary infrastructure investments.
These legislative packages incentivize investment in clean energy infrastructure and domestic chip manufacturing, creating jobs and fostering innovation across these critical sectors. On the clean energy side, the investments in nuclear energy are especially notable as the trend towards nuclear is really picking up and is extremely promising.
This focus on infrastructure not only strengthens national security but positions the US to cement its position as a leading energy producer globally, and paves the way for advancement in semiconductors, which are only growing in importance.
It also increases the country’s manufacturing abilities, reshoring some of the jobs that were lost during the period of globalization, likely resulting in economic optimism.
These investments will have far-reaching implications and should benefit many sectors of the economy.
AI Boom
The explosion of artificial intelligence is profoundly bullish for the economy and stock market due to its transformative potential across various industries. Many experienced investors believe it will be as significant to markets as the proliferation of the internet was.
As artificial intelligence technologies continue to advance, they enhance productivity, efficiency, and innovation, driving economic growth. Companies deploying AI solutions can streamline operations, reduce costs, and gain a competitive edge, leading to higher profitability and shareholder returns.
Moreover, AI's ability to analyze vast amounts of data and generate actionable insights enables businesses to make more informed decisions, further fueling expansion and market performance.
The effect on productivity is especially notable. In Q4 2023 the US Bureau of Labor Statistics productivity gains at 3.2%, well above the long-term average of 2.1% demonstrating the strong effects the technology is already having.
Near-Term Risks
I would be remiss to exclude the catalysts shaking up the market currently. And though they are concern-worthy, they are mostly fleeting, and in my opinion, do not currently threaten the uptrend.
The primary risk to this bull market is inflation. If there is a marked increase in the rate of inflation, there could be some more challenging market action that has to play out. However, even with the most recent data I put the odds of another inflation spike very low.
Additionally, the Fed takes inflation risks very seriously and would do everything it needs to as soon as the inflation risks became clear. But again, that risk is quite low as the vast majority of data points to continued disinflation.
I think the likeliest scenario is that future inflation prints show that the recent increase was just momentary, and that inflation is set to continue falling. This should reset interest rate policy expectations and markets should price in rate cuts starting in the second half of the year, which would be very bullish.
Another headline risk is the geopolitical activities like those currently playing out in the Middle East. However, while tragic in many ways these things usually have limited influence on markets after the initiation of conflict.
One exigent development to monitor could be in the oil market. The Middle East is of course a huge producer of oil and further escalations in the region may affect the price of oil. The most recent spat between Israel and Iran does seem to have dampened the risk of a wider spread conflict though.
As for the Presidential election, although it seems uncertain, there is little evidence that either candidate will be bearish for the stock market. Historically, there is some volatility leading up to the event, but it is usually followed by a settling down of anxieties, and the presidential election cycle suggests that the year following elections is also bullish.
Stocks to Buy
There are of course many ways to go about picking stocks, but sticking to a process is probably the best way to have success.
For me, there are a few fundamental techniques that aid in profitable trading.
Firstly, focus on sectors that are leading the market. The leading sectors usually have some economic factors driving them higher. As discussed here, the AI boom, and government spending are major trends moving the market.
Technology stocks like the “Magnificent Seven” benefit from the trend in AI, as well as other semiconductor stocks and ancillary industries like data centers. As far as fiscal spending, we know the nuclear energy industry is going to see a big boost in the coming years, and stocks in that sector have been very strong.
Secondly, identify the stocks in the leading sectors that are showing relative strength. Some investors buy the laggards hoping to pick out undervalued stocks, but those making new highs are usually the ones that continue higher thanks to momentum.
Leaders lead for a reason, usually because they are the fastest growing and most critical to a trend. Don’t over complicate this part.
Finally, use the Zacks Rank to filter for stocks with increased odds of rallying in the near-term.
I have been continuously impressed by the Zacks Rank’s ability to identify winning stocks. Over the last year it has been spot on in picking the biggest winners like Nvidia and Meta Platforms and offers up new investment ideas daily.
By aggregating all the analysts’ earnings revisions on each stock, the Zacks Rank provides a score and identifies those most likely to rally. Focus on stocks with Zacks Rank #1 and #2 as they have the strongest earnings revision trends.
That’s it! Focus on the best stocks in the best sectors and use the Zacks Rank to filter for stocks with growing earnings estimates.
It isn’t easy, but it can be simple.
Bottom Line
Many of the trends that have carried the market higher over the last year are still very relevant today and are likely in the early innings.
The bullish factors have years of runway, while the bearish ones are mostly transient. This is where that big opportunity comes from, intermediate pause during a powerful bull market.
Some investors will focus on the risks, and find reasons to sell good stocks, but the discerning investors will see this for what it is, a shakeout of the weak hands. Don’t fear the near-term volatility, embrace it and pick up shares in the top stocks.
The US stock market has an epic history of climbing the wall of worry so don’t panic and miss out on a powerful bull market.
The Easiest Way To Capitalize on Today’s Market
Today I'm pleased to offer you full 30-day, real-time access to every stock and ETF we’re recommending as part of our celebrated Zacks Ultimate service.
Total cost $1, and not 1 cent of further obligation.
All of our portfolios are grounded in Zacks Rank fundamentals. Don't miss your chance to see the picks from ready-to-fly stocks under $10, to professional options trades… from surging tech buys, to long-term value stocks… and from home run investments, to income recommendations.
These portfolios closed 228 positions with double and triple-digit profits in 2023 alone and 88 more so far this year. While we can’t promise every stock will be a winner, members following these picks have seen gains of +200.3%, +319.3% and even +475.0%.¹
Your cost for all this is only $1, and there's not 1 cent of obligation to spend anything more.
Bonus Report: You'll also receive our Ultimate Four Special Report which highlights our best 4 stocks to buy in Q2. These 4 stocks are judged by our experts to have the greatest upside this quarter and beyond – and we believe now is the perfect time to get in.
Important, your opportunity ends at midnight Sunday, April 28.
Access Zacks Ultimate and Download the Ultimate Four Special Report Now >>
All the best,
Ethan Feller
Ethan Feller is a Zacks Strategist with special interest in portfolio analysis. He invites you to access our Zacks Ultimate program and follow all our real-time buys & sells for 30 days. Only $1.
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. Access grants you a comprehensive list of all open and closed trades.
Image: Bigstock
Preparing for the Greatest Buying Opportunity of the Year
After a strong run to start the year, markets have pulled back over the last couple of weeks and many investors are already anticipating the worst.
With mixed signals from inflation, shifting interest rate policy expectations, rising geopolitical tension and the upcoming Presidential election there are some uncertain factors on the horizon. But is it really time to be cautious?
I would argue no, it isn’t a time to be fearful – and in fact it is probably a good time to be tactically bullish and maybe even a little greedy.
There is a litany of factors that should drive this market higher over the next couple of years, and a medium-term pause amid a strong uptrend is a tactically advantageous moment in the market.
Seasonality trends suggest that the next 1-2 months could be marked by higher volatility and choppy sideways action, which should continue to shake the weak hands from good stocks. The more bearish the news gets, and the more weary investors become during this period, the richer the opportunities.
By focusing on secular economic trends leading the market and owning the best stocks as identified by the Zacks Rank, the rest of the year may be extremely profitable.
Don’t miss the forest for the trees – long-term bullish factors paired with near-term uncertainty is creating a truly exceptional opportunity for investors who can step up to the occasion.
Let’s discuss the positive developments so you don’t get caught up in the bearish news. Then we’ll cover how to find the big winning stocks.
Robust Economy
The strength of the US economy continues to surprise to the upside, with the labor market remaining persistently strong, and GDP growing above trend.
Estimates from the Federal Reserve Bank of Atlanta are currently for annual GDP growth of 2.9%. Additionally, just two weeks ago the IMF raised their global growth forecast to 3.2%, up from January’s forecast of 3.1% and driven by US economic strength.
They gave the US the biggest upside revision, raising their growth forecast to 2.7% from the previous estimate of 2.1%.
Unemployment is also pinned to lower levels. Even after two years of extremely restrictive monetary policy the unemployment rate is still just 3.8%.
Analysts have unsuccessfully been forecasting rising unemployment for most of the last two years, and now that we are approaching expansionary policy it seems the dire rise may never come.
Furthermore, the US household balance sheets are as secure as they have been in decades. Mortgage payments as a percentage of disposable income are below 10%, the lowest level going back to 1980, and household wealth just registered new all-time highs of $150 trillion.
Excess disposable income, along with the wealth effect will continue to drive consumer spending, and household leverage eliminates systemic risk.
Rate Cuts are Coming
The Federal Reserve is very close to changing their policy outlook, shifting from high interest rates and restrictive monetary policy to cutting rates and increasing liquidity. Lower rates will increase lending and spending, and likely power the stock market higher.
While the most recent data has shown a slight uptick in inflation, which has pushed rate cut expectations farther out in the future, they are still very likely cutting this year. Furthermore, there has been limited data showing that inflation is picking up and the disinflationary trend has been persistent over the last year.
So, unless the data shows inflation continuing to rise materially, the rate cut expectations could quickly reverse, and may still arrive within the next few months.
Along with earnings growth, liquidity is the most influential factor moving markets. Increasing liquidity has a strong correlation with higher stock and asset prices.
Continued . . .
------------------------------------------------------------------------------------------------------
Ultimate Access Is Only $1
Starting today, for one month, you are invited to see the real-time buys and sells from all our private portfolios for only $1. And you won't be obligated to spend another cent.
These portfolios closed 228 double and triple-digit gains last year and already 88 more in 2024. While not all our picks are winners, members saw gains of +129.3%, +200.3%, +319.3% and even +475.0%.¹
When you start your $1 trial, you can also download our just-released Ultimate Four report. Don’t miss out. Special opportunity ends at midnight Sunday, April 28.
See Our “Ultimate” Stocks Now >>
------------------------------------------------------------------------------------------------------
Infrastructure and Fiscal Spending
We covered monetary policy, but what about the fiscal side?
For better or worse the US government has been very liberal with spending and is running a significant deficit. And while I can sympathize with the fiscal hawks and their concern for excessive deficit spending, a lot of it is going to a good cause.
Between the Inflation Reduction Act and the Chips Act, there is a huge amount of money being injected into exciting and necessary infrastructure investments.
These legislative packages incentivize investment in clean energy infrastructure and domestic chip manufacturing, creating jobs and fostering innovation across these critical sectors. On the clean energy side, the investments in nuclear energy are especially notable as the trend towards nuclear is really picking up and is extremely promising.
This focus on infrastructure not only strengthens national security but positions the US to cement its position as a leading energy producer globally, and paves the way for advancement in semiconductors, which are only growing in importance.
It also increases the country’s manufacturing abilities, reshoring some of the jobs that were lost during the period of globalization, likely resulting in economic optimism.
These investments will have far-reaching implications and should benefit many sectors of the economy.
AI Boom
The explosion of artificial intelligence is profoundly bullish for the economy and stock market due to its transformative potential across various industries. Many experienced investors believe it will be as significant to markets as the proliferation of the internet was.
As artificial intelligence technologies continue to advance, they enhance productivity, efficiency, and innovation, driving economic growth. Companies deploying AI solutions can streamline operations, reduce costs, and gain a competitive edge, leading to higher profitability and shareholder returns.
Moreover, AI's ability to analyze vast amounts of data and generate actionable insights enables businesses to make more informed decisions, further fueling expansion and market performance.
The effect on productivity is especially notable. In Q4 2023 the US Bureau of Labor Statistics productivity gains at 3.2%, well above the long-term average of 2.1% demonstrating the strong effects the technology is already having.
Near-Term Risks
I would be remiss to exclude the catalysts shaking up the market currently. And though they are concern-worthy, they are mostly fleeting, and in my opinion, do not currently threaten the uptrend.
The primary risk to this bull market is inflation. If there is a marked increase in the rate of inflation, there could be some more challenging market action that has to play out. However, even with the most recent data I put the odds of another inflation spike very low.
Additionally, the Fed takes inflation risks very seriously and would do everything it needs to as soon as the inflation risks became clear. But again, that risk is quite low as the vast majority of data points to continued disinflation.
I think the likeliest scenario is that future inflation prints show that the recent increase was just momentary, and that inflation is set to continue falling. This should reset interest rate policy expectations and markets should price in rate cuts starting in the second half of the year, which would be very bullish.
Another headline risk is the geopolitical activities like those currently playing out in the Middle East. However, while tragic in many ways these things usually have limited influence on markets after the initiation of conflict.
One exigent development to monitor could be in the oil market. The Middle East is of course a huge producer of oil and further escalations in the region may affect the price of oil. The most recent spat between Israel and Iran does seem to have dampened the risk of a wider spread conflict though.
As for the Presidential election, although it seems uncertain, there is little evidence that either candidate will be bearish for the stock market. Historically, there is some volatility leading up to the event, but it is usually followed by a settling down of anxieties, and the presidential election cycle suggests that the year following elections is also bullish.
Stocks to Buy
There are of course many ways to go about picking stocks, but sticking to a process is probably the best way to have success.
For me, there are a few fundamental techniques that aid in profitable trading.
Firstly, focus on sectors that are leading the market. The leading sectors usually have some economic factors driving them higher. As discussed here, the AI boom, and government spending are major trends moving the market.
Technology stocks like the “Magnificent Seven” benefit from the trend in AI, as well as other semiconductor stocks and ancillary industries like data centers. As far as fiscal spending, we know the nuclear energy industry is going to see a big boost in the coming years, and stocks in that sector have been very strong.
Secondly, identify the stocks in the leading sectors that are showing relative strength. Some investors buy the laggards hoping to pick out undervalued stocks, but those making new highs are usually the ones that continue higher thanks to momentum.
Leaders lead for a reason, usually because they are the fastest growing and most critical to a trend. Don’t over complicate this part.
Finally, use the Zacks Rank to filter for stocks with increased odds of rallying in the near-term.
I have been continuously impressed by the Zacks Rank’s ability to identify winning stocks. Over the last year it has been spot on in picking the biggest winners like Nvidia and Meta Platforms and offers up new investment ideas daily.
By aggregating all the analysts’ earnings revisions on each stock, the Zacks Rank provides a score and identifies those most likely to rally. Focus on stocks with Zacks Rank #1 and #2 as they have the strongest earnings revision trends.
That’s it! Focus on the best stocks in the best sectors and use the Zacks Rank to filter for stocks with growing earnings estimates.
It isn’t easy, but it can be simple.
Bottom Line
Many of the trends that have carried the market higher over the last year are still very relevant today and are likely in the early innings.
The bullish factors have years of runway, while the bearish ones are mostly transient. This is where that big opportunity comes from, intermediate pause during a powerful bull market.
Some investors will focus on the risks, and find reasons to sell good stocks, but the discerning investors will see this for what it is, a shakeout of the weak hands. Don’t fear the near-term volatility, embrace it and pick up shares in the top stocks.
The US stock market has an epic history of climbing the wall of worry so don’t panic and miss out on a powerful bull market.
The Easiest Way To Capitalize on Today’s Market
Today I'm pleased to offer you full 30-day, real-time access to every stock and ETF we’re recommending as part of our celebrated Zacks Ultimate service.
Total cost $1, and not 1 cent of further obligation.
All of our portfolios are grounded in Zacks Rank fundamentals. Don't miss your chance to see the picks from ready-to-fly stocks under $10, to professional options trades… from surging tech buys, to long-term value stocks… and from home run investments, to income recommendations.
These portfolios closed 228 positions with double and triple-digit profits in 2023 alone and 88 more so far this year. While we can’t promise every stock will be a winner, members following these picks have seen gains of +200.3%, +319.3% and even +475.0%.¹
Your cost for all this is only $1, and there's not 1 cent of obligation to spend anything more.
Bonus Report: You'll also receive our Ultimate Four Special Report which highlights our best 4 stocks to buy in Q2. These 4 stocks are judged by our experts to have the greatest upside this quarter and beyond – and we believe now is the perfect time to get in.
Important, your opportunity ends at midnight Sunday, April 28.
Access Zacks Ultimate and Download the Ultimate Four Special Report Now >>
All the best,
Ethan Feller
Ethan Feller is a Zacks Strategist with special interest in portfolio analysis. He invites you to access our Zacks Ultimate program and follow all our real-time buys & sells for 30 days. Only $1.
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. Access grants you a comprehensive list of all open and closed trades.