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Index Investing May Be Dead Money For Awhile

Key Points:Recent market action suggests the nature of the market is changingIndex investors may experience low returns for the next 3-12 monthsStrategy and security selection is about to become much more importantThe nature of the stock market is chan…

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Key Points:

  • Recent market action suggests the nature of the market is changing
  • Index investors may experience low returns for the next 3-12 months
  • Strategy and security selection is about to become much more important

The nature of the stock market is changing, and investors may need to move beyond index funds and pay closer attention to strategy and security selection to prosper. Index investors enjoyed a terrific - almost uninterrupted - 21-month run following the Covid-19 panic in early 2020. Unfortunately, this type of "easy money" is the exception to the rule in the stock market. 

In the second half of 2021, we detected many signs of "churning" in the market - a particular type of internal market action that typically portends weakness for the major stock market averages. Churning does not necessarily portend a stock market crash, or even a long, drawn-out bear market, for that matter. But it does mean that the major market indexes could be "dead money" for a while.

Signs of "churning" everywhere

Churning is a word typically used to describe a period of market activity where the major market averages (Dow, S&P, Nasdaq, Russell 2000) continue to move mostly higher, while at the same time, a lot of individual stocks begin to experience weakness. While the market appears strong on the surface, there is significant weakness developing internally. Another phrase to describe this state of affairs is, "the Generals are leading, but the troops are not following." This is not a scenario likely to lead to a positive outcome.

What this means for investors

Given the extreme level of internal weakness in recent months, combined with the sharp market decline in recent weeks, it is vital to understand the likely implications for stock market investors as we advance.

The major indexes may move sideways to lower for anywhere from 6 to 12 months (or more if an actual bear market unfolds). As a result, strategy and security selection will likely become much more critical in the months ahead than they were following the post-Covid panic low in March 2020.

The NASDAQ HiLo Logic Index Indicator

Let's use the NASDAQ HiLo Logic Index to illustrate the potential for subpar index returns in the months ahead. 

Norman Fosback created the original HiLo Logic Index in 1979 using NYSE data. Intended as a way to observe "split" market conditions, it looks for times when there are both a large number of 52-week highs AND 52-week lows among securities on the exchange. 

  • When there are many new highs AND new lows, the market is severely split between winners and losers, and it tends to be a negative for stocks going forward. 
  • When there is a very low number of one or the other, the market is heavily one-sided, which tends to be a positive for stocks. 
  • The indicator is traditionally interpreted over a longer time frame, so we suggest viewing it with a 10-day moving average.

Let's identify times in the past 20 years when the 10-day average of the NASDAQ HiLo Logic Index has dropped below 2.60 for the first time in a month. The twist is that we will measure results by looking at the S&P 500 Index (essentially as a proxy for the "market").

The input screens from the Sentimentrader Backtest Engine appear below. 

The output screen appears below. Note that a new signal occurred on 12/1/2021.

The table below displays the subpar nature of returns following previous signals.

A closer examination of post-signal market performance

Let's look at market action following the previous signals to understand better the potential implication of the most recent signal for index investors.

2002

The May 2002 alert signaled a continuation of an ongoing bear market. The S&P declined another -27% over the next 5+ months and was still -13.7% lower 12 months after the alert.

2007

2007 witnessed three separate alerts. After the May 2007 alert, the S&P 500 mustered only a +3.8% advance over the next five months, at which point the Great Financial Crisis bear market of 2007-2009 began. Twelve months after the November 2007 alert, the S&P 500 stood over -40% lower.

2014

The December 2014 alert foreshadowed a long period of sideways to lower price action for the S&P 500 Index. Five months after the signal, the S&P 500 was a mere +2.9% higher. It peaked in May 2015 and stood at -2.4% lower twelve months after the December 2014 alert. 

2015

The August 2015 alert was followed by a pair of short, sharp declines, with a maximum drawdown of -12.8% between August 2015 and February 2016.  Eleven months after the August 2015 alert, the S&P 500 remained unchanged, resulting in another "lost year" for index investors.

2018

2018 witnessed two alerts back-to-back in August and September. Following the September 2018 alert, the S&P 500 plummeted almost -20% by late December 2018. Even after the strong rebound from the December 2018 low, the S&P was unchanged nearly a year after the September 2018 alert.

2019

The 2019 alerts in August and December are interesting. Despite these two warnings, the S&P 500 continued to rally strongly into February 2020. Likewise, the 12-month return for the August alert was +15.48%, and the 12-month return for the December alert was +17.62%. So not valuable signals, right?  

Well, maybe. However, these two alerts preceded the Covid-induced panic in February and March 2020, which saw the S&P 500 plummet -34% in a matter of weeks.

2021

A new NASDAQ HiLo Logic alert occurred on Wednesday, December 1st. Based on the information above, it is not difficult to envision a challenging 6-12 months ahead for investors who park their money in index funds and "let it ride."

What the research tells us...

Churning in the stock market - i.e., when weak internals are hidden beneath reasonably performing indexes - should always be viewed as a warning sign that the nature of the market will likely be changing soon. Churning typically portends future trouble for the major indexes themselves over the next 6-12 months. When you identify a period of churning, it may be wise to review your investment methods to ensure you are not relying solely on index performance to make money.

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Economics

5 Top Consumer Stocks To Watch Right Now

Are these consumer stocks a buy amid the earnings season?
The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes,…

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5 Trending Consumer Stocks To Watch In The Stock Market Now         

As we tread through the earnings season, consumer stocks could be worth watching in the stock market this week. This would be the case since a number of big consumer names such as Costco (NASDAQ: COST) and Macy’s (NYSE: M) will be posting their financials for the quarter. As such, investors will be keeping an eye on these reports for clues on the strength of consumer spending amid this period of high inflation.

However, despite the soaring prices across the economy, it seems that consumers are surprisingly showing resilience. According to the Commerce Department, retail sales in April outpaced inflation for a fourth straight month. This could suggest that consumers as a whole were not only sustaining their spending, but spending more even after adjusting for inflation. Ultimately, it could be a reassuring sign that consumers are still supporting the economy and helping to diminish the narrative of an incoming recession. With that being said, here are five consumer stocks to check out in the stock market today.

Consumer Stocks To Buy [Or Sell] Right Now

Nordstrom

retail stocks (JWN stock)

Starting off our list of consumer stocks today is Nordstrom. For the most part, it is a fashion retailer of full-line luxury apparel, footwear, accessories, and cosmetics among others. The company operates through multiple retail channels, boutiques, and online as well. As it stands, Nordstrom operates around 100 stores in 32 states in the U.S. and three Canadian provinces.

Yesterday, the company reported its financials for the first quarter of 2022. Starting with revenue, Nordstrom pulled in net sales worth $3.47 million for the quarter. This marks an increase of 18.7% from the same quarter last year. Its Nordstrom banner saw net sales rise by 23.5% year-over-year, exceeding pre-pandemic levels. Next to that, its Nordstrom Rack banner saw a 10.3% increase in net sales from last year. Besides, net earnings were $20 million, with earnings per share of $0.13 for the quarter. Considering Nordstrom’s solid quarter, should you invest in JWN stock?

[Read More] Best Stocks To Invest In Right Now? 5 Value Stocks To Watch This Week

The Wendy’s Company

best consumer stocks (WEN stock)

Next up, we have The Wendy’s Company. For the most part, it is the holding company for the major fast-food chain, Wendy’s. Being one of the world’s largest hamburger fast-food chains, the company boasts over 6,500 restaurants in the U.S. and 29 other countries. The chain is known for its square hamburgers, sea salt fries, and the Frosty, a form of soft-serve ice cream mixed with starches. WEN stock is rising by over 8% on today’s opening bell.

According to an SEC filing, Wendy’s largest shareholder, Trian Partners, is looking into making a potential deal with the company. Trian said that it is considering a deal to “enhance shareholder value.” Also, the firm adds that this could lead to an acquisition or business combination. In response, Wendy’s stated that it is constantly reviewing strategic priorities and opportunities. It added that the company’s board will carefully review any proposal from Trian. Given this piece of news, will you be watching WEN stock?

[Read More] 4 Semiconductor Stocks To Watch In The Stock Market Today

Foot Locker

FL stock

Another stock investors could be watching is the shoes and apparel company, Foot Locker. In brief, the company uses its omnichannel capabilities to bridge the digital world and physical stores. As such, it provides buy online and pickup-in-store services, order-in-store, as well as the growing trend of e-commerce. Some of its most notable brands include Eastbay, Footaction, Foot Locker, Champs Sports, and Sidestep. Last week, the company reported its results for the first quarter of the year.

For starters, total sales came in at $2.175 billion, a slight uptick compared to sales of $2.153 billion in the year prior. Next to that, Foot Locker reported a net income of $133 million. Accordingly, adjusted earnings per share came in at $1.60, beating Wall Street’s expectations of $1.54. CEO Richard Johnson added, “Our progress in broadening and enriching our assortment continues to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, which will allow us to more fully participate in the robust growth of our category going forward.”  As such, is FL stock one to add to your watchlist? 

Tyson Foods 

TSN stock

Tyson Foods is a company that built its name on providing families with wholesome and great-tasting protein products. Its segments include Beef, Pork, Chicken, and Prepared Foods. With some of the fastest-growing portfolio of protein-centric brands, it should not be surprising that TSN stock often comes to mind when investors are looking for the best consumer stocks to buy. 

Earlier this month, Tyson Foods provided its fiscal second-quarter financial update. The company’s total sales for the quarter were $13.1 billion, representing an increase of 15.9% compared to the prior year’s quarter. Meanwhile, its GAAP earnings per share climbed to $2.28, up 75% year-over-year. According to Tyson, these financial figures are a reflection of the increasing consumer demand for its brands and products. To top it off, the company was also able to reduce its total debt by approximately $1 billion. Thus, does TSN stock have a spot on your watchlist?

[Read More] Stock Market Today: Dow Jones, S&P 500 Rise, Wendy’s Stock Gains On Potential Deal

DoorDash

food delivery stocks (DASH Stock)

DoorDash is a consumer company that operates an online food ordering and delivery platform. In fact, it is one of the largest delivery companies in the U.S. and enjoys a huge market share. The company connects hundreds of thousands of merchants to over 25 million consumers in the U.S., Canada, Australia, and Japan through its local logistics platform. Accordingly, its platform allows local businesses to thrive in today’s “convenience economy,” as the company puts it.

On May 5, the company reported its first-quarter financials for 2022. Diving in, it posted a revenue of $1.5 billion, growing by 35% year-over-year. This was driven by total orders that grew by 23% year-over-year to $404 million. Along with that, it reported a GAAP gross profit of $662 million, an increase of 34% year-over-year. The company said that it added more consumers than any quarter since Q1 2021, due in part to the growth of its DashPass members. The growth in Monthly Active Users and average order frequency has helped it gain share in the U.S. Food Delivery category this quarter as well. Given DoorDash’s performance for the quarter, should you watch DASH stock?

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The post 5 Top Consumer Stocks To Watch Right Now appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Economics

Finding Shelter in an Inverse ETF

As the old saying goes, “What goes up must come down.” Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued…

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As the old saying goes, “What goes up must come down.”

Indeed, up until the recent selling wave caused by Russia’s war against Ukraine and the continued effects of supply chain disruptions amid the COVID-19 pandemic, tech stocks, including semiconductors, were the darlings of the investment world. That is, it seemed as if the sky-high valuations of some tech stocks were sustainable in an atmosphere of seemingly perpetual growth.

That, of course, was not the case, and the too-good-to-be-true valuations were quickly brought down to earth by the forces of inflation and tight monetary policy. As a result, the tech-heavy Nasdaq entered a free-fall that has not yet found a bottom.

At the same time, that does not mean that we should abandon the sector as a lost cause. One such way to play the sector during its downhill slide is the exchange-traded fund (ETF) Direxion Daily Semiconductor Bear 3X Shares (NYSEARCA: SOXS).

As its title suggests, this is an inverse ETF, meaning that it is built to go up in value when its parent index goes down. Specifically, SOXS provides three times leveraged inverse exposure to a modified market-cap-weighted index of semiconductor companies that trade in American markets by using swap agreements, futures contracts and short positions.

While the index’s holdings are weighted by market capitalization, the fund’s managers cap the weights of the top five securities in the portfolio at 8% each. The weight of the remaining securities is capped at 4% each.

As of May 24, SOXS has been up 0.37% over the past month and up 24.73% for the past three months. It is currently up 60.47% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $258.15 million in assets under management and has an expense ratio of 1.01%.

In short, while SOXS does provide an investor with a way to invest in an inverse ETF, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

The post Finding Shelter in an Inverse ETF appeared first on Stock Investor.

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Stocks

Will Albertsons outperform due to its high return on equity for low beta?

Albertsons Companies Inc. (NYSE:ACI) is trading at $29. The stock has risen 81.25% from the IPO in the last quarter of 2020. In the two years since going…

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Albertsons Companies Inc. (NYSE:ACI) is trading at $29. The stock has risen 81.25% from the IPO in the last quarter of 2020. In the two years since going public, Albertsons Companies paid dividends each quarter. The annual dividend currently stands at $0.48, with a yield of 1.64%.

Albertsons is rated high on both value and growth. The company’s heritage has been built over the years since its founding in 1939. Today, the company is the second-largest traditional grocer in the US.

The company went public during a pandemic to fund new growth opportunities. However, it faces the headwinds of inflation and bear markets. Despite pressures, Albertsons will be among the few stocks that will outperform the market.

The ROE stands at 74.48%. This is a fundamental strength that should make investors troop to Albertsons. The EPS is at $2.8 and growing at more than 6.13%. At the valuation of $29, the PE is just about 10. All this for a beta of only 0.3, indicating a low risk.

Albertsons has support at $26.80 and resistance at $36.75

Source – TradingView

Albertsons has support at $26.80. This week, the stock has been bullish, having gained 7.82%. It is among a handful of stocks that have been braving the bear markets. This analysis projects that the stock will face some resistance at $36.75. However, it would break out at the next earnings release on July 28. If an investor were to take a position today, there is the likelihood of enjoying significant gains by the next earnings call.

Summary

Albertsons is an attractive value and growth stock. The share is trading at $29 with a price target of $36 by the end of July. Albertsons is also emerging as an attractive dividend stock.

The post Will Albertsons outperform due to its high return on equity for low beta? appeared first on Invezz.

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