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
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 . . .
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Inflation and Interest Rates
Inflation and rising interest rates continue to grip the
Inflation, for example, is likely to stay elevated for quite
some time. But last week’s CPI and
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
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
And the Fed has already telegraphed that they are poised to
raise rates another 50 basis points at each of their next two
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,
should “flourish in the face of less accommodative monetary
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.
In fact, oil traded above
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
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
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 (
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
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
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
And did you also know that stocks in the top 50% 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
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 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
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.
just shared and guides you to better trading step by step, plus so
You’ll quickly see how to get the most out of the proven
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You’ll get the formulas behind our top-performing strategies
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Today is the perfect time to get in. I’m giving participants
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Thanks and good trading,
Zacks Executive VP
trading and investing services. He developed many of our most
powerful market-beating strategies and directs the
¹ The results
listed above are not (or may not be) representative of the
performance of all strategies developed by
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