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How To Trade This Bull Market As The Economy Reopens

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The bull market is back. And stocks have been on a tear.

Pretty amazing, given where we were just a few months ago.

Since the pandemic low close in late March, the Dow has surged by more than 48%, the S&P by 44%, and the Nasdaq by 50% (which made new all-time highs just the other day and is positive on the year).

It’s been a record-setting move.

But the best part is that it looks like there’s a lot more upside to go.

History has shown that after bear markets end, the bull market rallies that follow are nothing short of spectacular.

Following the previous bear market of 2007-2009 (during the housing/financial crisis, aka the Great Recession), the market (Dow) gained 63.4% in year 1; 100.6% by year 3; 153.6% by year 5; and more than 357% during the entire 11+ year bull market.

And with many analysts calling for an ‘unprecedented’ second half recovery, the gains are poised to be even bigger this time.

More . . .


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Then And Now

The difference between previous bear markets, and the one that just ended, is that they are typically preceded by a slowing economy. But this one came about due to an unforeseen exogenous event -- the coronavirus. 

Prior to the outbreak, the U.S. economy was considered to be the strongest of our lifetime with 50-year low unemployment, 20-year high in household income, near record high consumer confidence, and record high corporate profits.

Yet in an effort to slow/stop the spread of the virus, businesses were temporarily shut, people were kept inside, and the country was put on lockdown, which artificially suppressed economic activity.

Rather than a typical recession, this will be remembered as the ‘Great Suppression’.

But that’s over. And now the economy is reopening.

All 50 states have reopened in some shape or form. There have been some bumps in the road, namely an increase in coronavirus cases. And the affected areas are slowing down their reopening plans and imposing new restrictions to get it under control.

In spite of these setbacks, the reopening continues.

And we’re seeing huge pent-up economic demand being unleashed. 

You can see that in the latest Employment Situation Report which showed 4.8 million jobs gained vs. 3.0 million jobs expected. And that comes on the heels of the previous Employment Report which showed 2.7 million jobs gained vs. expectations for -7.7 million jobs lost.

The stronger than expected economic recovery is also being underscored by the latest Retail Sales Report which jumped 17.7% for the biggest monthly gain ever; and the Housing Market Index which surged 56.8%, also the biggest monthly gain ever.

Additionally, mortgage demand has climbed to an 11-year high; Weekly Jobless Claims have fallen again for the 13th week in a row; Factory Orders are up 8%; and the ISM Manufacturing and PMI Manufacturing numbers are up even more, increasing by 22.0% and 25.1% respectively. 

And that’s just for starters.

Q3 GDP is expected to rise by a record 20%, with another double-digit gain in Q4.

And GDP for all of 2021 is expected to grow by 5% (the largest annual GDP growth rate in 38 years)!

This is why stocks are soaring. And why they should continue to do so.

Helping Hand

Another reason why analysts are calling for an unprecedented economic recovery is because of the unprecedented aid that has been made available to businesses and workers.

So far, nearly $10 trillion in fiscal and monetary stimulus has been pumped into the economy.

And it looks like there could be another stimulus package on the way. 

Talk of bipartisan support for another $1.5 trillion stimulus bill could get done sometime this month, before Congress leaves for its August recess. That could include checks to individuals, more small business loans, aid to states and municipalities, infrastructure, and more. However, Treasury Secretary, Steven Mnuchin, made it clear that this package would be “jobs-focused,” with a priority on “bringing back” positions.

Let’s also not forget that the Fed slashed interest rates to near zero. And it doesn’t look like those are going to go up anytime soon. That’s bullish for both businesses and consumers as it keeps more money in people’s pockets, increases everybody’s purchasing power, giving them more money to spend.   

Given all of the above, that’s why Fed Chair, Jerome Powell, has forecast a “robust” economic recovery, and that the current job losses are just temporary. 

All sentiments many market watchers share. But it’s always good to hear it from an authority like Mr. Powell.

Riding The Bull 

We all knew once the pullback was over that a new bull market was inevitable. History has proven that.

But the speed of this bull market has caught many off guard.

And the gains keep racking up.

But not all stocks are created equal. And there will be distinct winners and losers in the subsequent rallies to come.

Of course, there are the obvious. In the winners column you’ve got online shopping companies, home delivery, telecommuting and videoconferencing software, etc.

In the losers column you’ve got airlines, hotels, brick and mortar retail, and more.

But there are less obvious picks and pans.

Those with the best balance sheets and cash flows will fare the best.

But restaurants, for example, in spite of the reopening, are likely to only return to 75% of their previous levels. And it will likely take the rest of the year to do it as social distancing cuts into their seating capacity.

Companies in the Medical Sector should do well. Especially those focused on coronavirus testing, therapeutics and vaccines. Abbott Labs, for example, came out with a new test kit that’s expected to add $1 billion in sales. Gilead has seen promising results with their drug Remdesivir, and after donating doses to the government since May, will begin selling it in July. Moderna reported positive results from a Phase 1 clinical trial for their possible coronavirus vaccine. And it’s been reported that Pfizer has shown positive results with their potential vaccine as well. But it’s becoming a crowded field. There’s plenty of cost to produce all of the above. And not every new product from every company will succeed.

The oil industry had been hit hard as declining demand and overproduction led to a gigantic oversupply. But in all of that carnage, the shipping industry (specifically those that could store crude oil in their tankers) had seen numerous stocks spike up as customers looked to those firms to store their oil.

The point is, there will be huge opportunities in many different sectors and industries as this confirmed bull market unfolds.

Some of the breakout stocks will be tried and true names we all know and love.

And others will be stocks you may never have even heard of before.

That’s because this virus outbreak, and the upheavals it’s brought about for businesses and consumers, will change large portions of our economy. And the companies that can adapt will thrive and become new market leaders. While those that can’t will suffer.

And you need to know how to determine which is which.

Do What Works 

The best way to find the new market leaders is to stick with time-tested methods that work.

For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 26 of the last 32 years with an average annual return of 24.5% per year? That's nearly 2.5 x the S&P with an annual win ratio of more than 81%.

That includes 2 bear markets and 3 recessions.

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 achieving your investment goals.

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 you focus on proven, profitable strategies 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.

One of the best ways to begin picking better stocks is to see what the pros are doing.

Whether you’re a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains.

This applies to large-caps and small-caps, biotech and high-tech, ETF’s, stocks under $10, stocks about to surprise, even options, and everything in between.

Regardless of which one fits your personal style of trade, just be sure you’re following proven profitable methods that work, from experts who have demonstrated their ability to beat the market.

The best part about these strategies is that all of the hard work is done for you. There’s no guesswork involved. Just follow the experts and start getting into better stocks on your very next trade.

How To Get Started 

Download our just-released Ultimate Four Special Report.

It names and explains 4 stocks with strong fundamentals that are hand-picked by our experts to have the biggest upsides for Q3. 

And Q3 is expected to rock with the highest GDP growth in U.S. history.

These companies are primed to flourish as the global economy continues to reopen and pent-up consumer demand continues to unleash.

Stock #1: Other than supermarkets, how many retailers posted positive year-over-year sales? This one did. Besides food-related products it owns 7 other powerful brands. Online sales have skyrocketed. So have earnings estimates. The stock price looks to follow.

Stock #2: Amazon isn’t the only cloud-based tech provider being swept skyward by the global shift to e-commerce and the unleashing of pent-up demand. With rising earnings estimates, this mid-cap is poised to reach all-time highs and far beyond.

Stock #3: Key player in a music streaming market predicted to grow 30% in 2020. Immune to COVID-19, it has hundreds of millions of virtual users and 6,000 employees that can work remotely. A huge new celeb licensing deal should add more thrust to a surging stock price.

Stock #4: Talk about being at the right place at the right time, this virtual education-focused tech company estimates Q2 growth to exceed 45%. Four strategic acquisitions position them for continued global expansion and sustained growth.

Don’t miss the ideal time to get into these Ultimate Four. We’re limiting the number of people who share our Special Report, so the opportunity to download it ends midnight Sunday, July 5.

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Thanks and good trading,

Kevin

Kevin Matras serves as Executive Vice President of Zacks.com and is responsible for all of its leading products for individual investors. He invites you to download Zacks’ newly released Ultimate Four Special Report.