Connect with us

International

Growth Stocks Remain Under Big Pressure, But Get Ready To Buy Soon

The prospects of surging inflation and higher interest rates hinder the performance of growth stocks in a big way. Remember, their valuations are highly…

Published

2 years ago

on

The prospects of surging inflation and higher interest rates hinder the performance of growth stocks in a big way. Remember, their valuations are highly dependent on future promises of earnings and earnings growth. Inflation and higher rates eat away at that future growth. And a recession changes the picture completely as growth forecasts are significantly lowered.

The Federal Reserve meets on Tuesday and Wednesday and they've promised to embark on a rate-raising campaign, one targeted at bringing inflation under control. I believe the upcoming recession will help to take care of it, just as it did in 1990 during the Persian Gulf War. In case you haven't been watching, consumer sentiment has been dropping for awhile now and that's a leading indicator of recession. Rising crude oil prices ($WTIC), interest rates, and the Russia-Ukraine conflict will add to the recessionary pressures as well. But let's discuss the history of recent recessions. There have been 10 recessions since 1950, as follows:

  • 2020 (COVID-19 pandemic, cyclical bear market)
  • 2007-2009 (financial crisis, secular bear market)
  • 2001 (dot-com bubble, secular bear market)
  • 1990-1991 (Persian Gulf War, cyclical bear market)
  • 1981-1982 (monetary policy, cyclical bear market)
  • 1980 (rapidly-rising rates to fight inflation, secular bear market)
  • 1973-1975 (oil crisis and stagflation, secular bear market)
  • 1969-1970 (inflation and Vietnam War, secular bear market)
  • 1960-1961 (monetary policy, cyclical bear market)
  • 1957-1958 (monetary policy, cyclical bear market)
  • 1953-1954 (monetary policy, cyclical bear market)

To summarize, ALL 10 recessions have occurred during a bear market of some type - either the shorter version cyclical bear market (within a secular bull market) or the longer version secular bear market. Please understand that recessions can lead to the shorter version bear markets. Of the 10 recessions since 1950, 6 have occurred during secular BULL markets. I believe 2022 will mark the 7th out of 11. It doesn't matter what the news stories are, that doesn't change the fact that interest rates remain near historic lows. Simply put, there is no other place to invest given the cost of funds.

But cyclical bear markets are painful too. I don't believe we've reached bottom. History shows that inflation peaks result in MASSIVE outperformance by growth stocks, so timing inflation, and its likely future drop, will be the key to marking the stock market bottom. If you think inflation remains a problem for many months or years, then investing in the U.S. stock market is probably not the best choice right now. I believe inflation is close to peaking. Feel free to disagree. I said at the beginning of the year that we had 3 or 4 CPI reports that would show rising inflation. After that, I expect to see it begin to drop.

For what it's worth, Wall Street is not anticipating better days ahead for growth stocks - at least not yet. Here are 3 key growth vs. value ratios that are trending lower with the S&P 500, a signal that further selling ahead is likely:

Listen, these ratios will bounce back, and so too will growth stocks in general. But holding them ahead of an impending recession with the Federal Reserve about to announce its first rate hike is probably not the best choice right now. Keep one thing in mind, however. Stock market bottoms take place LONG BEFORE the fundamental news improves. The 1990-1991 recession started in July 1990 and ended March 1991. When did the S&P 500 bottom and when did the relative ratio of growth vs. value bottom? Both in October 1990, 5 months prior to the end of the recession. The stock market prices in both good news and bad news months ahead of the actual news surfacing.

I see two possible scenarios as most likely. Either we (1) bottom in March/April and have a "V" bottom and return to all-time highs later in 2022 or early 2023, or (2) bottom in March/April, but experience more sideways action throughout the summer before rallying later in 2022 and into 2023. In either case, I see the S&P 500 setting new all-time highs by the first half of 2023, at the latest.

Be ready to "hold your nose" and buy the bottom.

In the meantime, prepare for a not-so-nice Fed. Fed Chair Jay Powell and his buddies are going to hike rates on Wednesday for the first time since 2018 and likely announce a series of upcoming hikes. I expect that one group seemingly poised to benefit from rate hikes may get crushed on the announcement. I'll be providing one stock within that group in my Monday morning edition of EarningsBeats Digest, our 3x per week newsletter. It's free with no credit card required and you may cancel your subscription at any time. To receive this stock tomorrow morning, CLICK HERE and provide us your name and email address.

Happy trading!

Tom


Read More

Related Topics:
Continue Reading

International

Fighting the Surveillance State Begins with the Individual

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in…

Published

2 hours ago

on

October 23, 2023

By

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in place, collecting data on the entire populace. This has been proven beyond a shadow of a doubt by people like Edward Snowden, a National Security Agency (NSA) whistleblower who exposed that the NSA was conducting mass surveillance on US citizens and the world as a whole. The NSA used applications like those from Prism Systems to piggyback on corporations and the data collection their users had agreed to in the terms of service. Google would scan all emails sent to a Gmail address to use for personalized advertising. The government then went to these companies and demanded the data, and this is what makes the surveillance state so interesting. Neo-Marxists like Shoshana Zuboff have dubbed this “surveillance capitalism.” In China, the mass surveillance is conducted at a loss. Setting up closed-circuit television cameras and hiring government workers to be a mandatory editorial staff for blogs and social media can get quite expensive. But if you parasitically leech off a profitable business practice it means that the surveillance state will turn a profit, which is a great asset and an even greater weakness for the system. You see, when that is what your surveillance state is predicated on you’ve effectively given your subjects an opt-out button. They stop using services that spy on them. There is software and online services that are called “open source,” which refers to software whose code is publicly available and can be viewed by anyone so that you can see exactly what that software does. The opposite of this, and what you’re likely already familiar with, is proprietary software. Open-source software generally markets itself as privacy respecting and doesn’t participate in data collection. Services like that can really undo the tricky situation we’ve found ourselves in. It’s a simple fact of life that when the government is given a power—whether that be to regulate, surveil, tax, or plunder—it is nigh impossible to wrestle it away from the state outside somehow disposing of the state entirely. This is why the issue of undoing mass surveillance is of the utmost importance. If the government has the power to spy on its populace, it will. There are people, like the creators of The Social Dilemma, who think that the solution to these privacy invasions isn’t less government but more government, arguing that data collection should be taxed to dissuade the practice or that regulation needs to be put into place to actively prevent abuses. This is silly to anyone who understands the effect regulations have and how the internet really works. You see, data collection is necessary. You can’t have email without some elements of data collection because it’s simply how the protocol functions. The issue is how that data is stored and used. A tax on data collection itself will simply become another cost of doing business. A large company like Google can afford to pay a tax. But a company like Proton Mail, a smaller, more privacy-respecting business, likely couldn’t. Proton Mail’s business model is based on paid subscriptions. If there were additional taxes imposed on them, it’s possible that they would not be able to afford the cost and would be forced out of the market. To reiterate, if one really cares about the destruction of the surveillance state, the first step is to personally make changes to how you interact with online services and to whom you choose to give your data.

Read More

Continue Reading

International

Stock Market Today: Stocks turn higher as Treasury yields retreat; big tech earnings up next

A pullback in Treasury yields has stocks moving higher Monday heading into a busy earnings week and a key 2-year bond auction later on Tuesday.

Published

2 hours ago

on

October 23, 2023

By

Updated at 11:52 am EDT U.S. stocks turned higher Monday, heading into the busiest earnings week of the year on Wall Street, amid a pullback in Treasury bond yields that followed the first breach of 5% for 10-year notes since 2007. Investors, however, continue to track developments in Israel's war with Hamas, which launched its deadly attack from Gaza three weeks ago, as leaders around the region, and the wider world, work to contain the fighting and broker at least a form of cease-fire. Humanitarian aid is also making its way into Gaza, through the territory's border with Egypt, as officials continue to work for the release of more than 200 Israelis taken hostage by Hamas during the October 7 attack. Those diplomatic efforts eased some of the market's concern in overnight trading, but the lingering risk that regional adversaries such as Iran, or even Saudi Arabia, could be drawn into the conflict continues to blunt risk appetite. Still, the U.S. dollar index, which tracks the greenback against a basket of six global currencies and acts as the safe-haven benchmark in times of market turmoil, fell 0.37% in early New York trading 105.773, suggesting some modest moves into riskier assets. The Japanese yen, however, eased past the 150 mark in overnight dealing, a level that has some traders awaiting intervention from the Bank of Japan and which may have triggered small amounts of dollar sales and yen purchases. In the bond market, benchmark 10-year note yields breached the 5% mark in overnight trading, after briefly surpassing that level late last week for the first time since 2007, but were last seen trading at 4.867% ahead of $141 billion in 2-year, 5-year and 7-year note auctions later this week. Global oil prices were also lower, following two consecutive weekly gains that has take Brent crude, the global pricing benchmark, firmly past $90 a barrel amid supply disruption concerns tied to the middle east conflict. Brent contracts for December delivery were last seen $1.06 lower on the session at $91.07 per barrel while WTI futures contract for the same month fell $1.36 to $86.72 per barrel. Market volatility gauges were also active, with the CBOE Group's VIX index hitting a fresh seven-month high of $23.08 before easing to $20.18 later in the session. That level suggests traders are expecting ranges on the S&P 500 of around 1.26%, or 53 points, over the next month. A busy earnings week also indicates the likelihood of elevated trading volatility, with 158 S&P 500 companies reporting third quarter earnings over the next five days, including mega cap tech names such as Google parent Alphabet  (GOOGL) - Get Free Report, Microsoft  (MSFT) - Get Free Report, retail and cloud computing giant Amazon  (AMZN) - Get Free Report and Facebook owner Meta Platforms  (META) - Get Free Report. "It’s shaping up to be a big week for the market and it comes as the S&P 500 is testing a key level—the four-month low it set earlier this month," said Chris Larkin, managing director for trading and investing at E*TRADE from Morgan Stanley. "How the market responds to that test may hinge on sentiment, which often plays a larger-than-average role around this time of year," he added. "And right now, concerns about rising interest rates and geopolitical turmoil have the potential to exacerbate the market’s swings." Heading into the middle of the trading day on Wall Street, the S&P 500, which is down 8% from its early July peak, the highest of the year, was up 10 points, or 0.25%. The Dow Jones Industrial Average, which slumped into negative territory for the year last week, was marked 10 points lower while the Nasdaq, which fell 4.31% last week, was up 66 points, or 0.51%. In overseas markets, Europe's Stoxx 600 was marked 0.11% lower by the close of Frankfurt trading, with markets largely tracking U.S. stocks as well as the broader conflict in Israel. In Asia, a  slump in China stocks took the benchmark CSI 300 to a fresh 2019 low and pulled the region-wide MSCI ex-Japan 0.72% lower into the close of trading.
  • Get investment guidance from trusted portfolio managers without the management fees. Sign up for Action Alerts PLUS now.

Read More

Continue Reading

International

iPhone Maker Foxconn Investigated By Chinese Authorities

Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple…

Published

4 hours ago

on

October 23, 2023

By

Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple media reports. Foxconn’s business has been searched by Chinese authorities and China’s main tax authority has conducted inspections of Foxconn’s manufacturing operations in the Chinese provinces of Guangdong and Jiangsu. At the same time, China’s natural-resources department has begun onsite investigations into Foxconn’s land use in Henan and Hubei provinces within China. Foxconn has manufacturing facilities focused on Apple products in three of the Chinese provinces where authorities are carrying out searches. While headquartered in Taiwan, Foxconn has a huge manufacturing presence in China and is a large employer in the nation of 1.4 billion people. The investigations suggest that China is ramping up pressure on the company as Foxconn considers major investments in India, and as presidential elections approach in Taiwan. Foxconn founder Terry Gou said in August of this year that he intends to run for the Taiwanese presidency. He has resigned from the company’s board of directors but continues to hold a 12.5% stake in the company. Gou is currently in fourth place in the polls ahead of the election that is scheduled to be held in January 2024. The potential impact on Apple and its iPhone manufacturing comes amid rising political tensions between politicians in Washington, D.C. and Beijing. Apple’s stock has risen 16% over the last 12 months and currently trades at $172.88 U.S. per share.  

Read More

Continue Reading

Trending