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Here’s What to Do if the Market Turns
From Baltimore – The conversation about the economy and the stock market just turned. On a dime.
This shift happened so suddenly that many investors probably remain unaware of it (and they could certainly be forgiven for missing it).
For months, the discussions among economists and market watchers have centered on the idea of tremendous growth through 2021 as the economy reopens and pent-up consumer demand drives economic activity. That, in turn, would drive corporate sales and earnings, which would send stock prices soaring.
The only real concerns were that all this rapid growth would result in too much inflation and force the Federal Reserve to step in to slow things down – and that the stock market might be a bubble about to burst.
Suddenly, however, that narrative is very yesterday.
Now the conversation is all about “peak growth.” This is the idea that economic growth in the U.S. probably peaked in the second quarter (which ended last week) and that the second half of 2021 will see lower levels of both economic and corporate earnings growth.
Nuveen, a $1.2 trillion investment management firm, just published a midyear report titled “Growth Is Peaking. What Comes Next?” Gavekal Research’s June 25 note bears the headline “Peak U.S. Growth.” And Institutional Investor magazine writes that “Global Economic and Earnings Growth Is Approaching Its Peak. Now What?”
Does It Matter?
The peak-growth story is clearly very interesting if you’re an economist or an institution with $1 trillion in assets under management.
For ordinary investors, on the other hand, it doesn’t matter.
And that’s exactly the message you’ll get from today’s Market Wake-Up Call with Oxford Club Chief Investment Strategist Alexander Green.
Because regardless of what the economy and the market are doing, for individual stocks, only four simple words matter…
Share prices follow earnings.
“You can look back to the history of the stock market and you will not find a single example of a company that increased its sales and earnings quarter after quarter without the stock going up,” Alex tells host and Senior Editor Rachel Gearhart in today’s video. Critically, Alex adds, “Even if it’s in a lousy market.”
“Nor will a company with lousy sales and earnings go up, even in a rip-roaring bull market, because people are discerning,” Alex says. “Investors want to own the best.”
So imagine that the “Negative Nellies” I described above are right in their predictions that U.S. economic growth peaked in the second quarter and will taper off over the remainder of 2021. And that this could cause the stock market to trade sideways, or even down.
It doesn’t matter. Because if you can identify companies with strong sales and earnings growth, high returns on equity, good management, and a few other critical traits that Alex screens for (and lists in today’s video), you’ll still get returns. Again, even in a lousy market.
For two decades in his VIP Trading Research Service The Momentum Alert, Alex has been identifying such companies, writing them up and alerting his subscribers to them. The results over 20 years – or more than 7,300 days – speak for themselves.
But what about in bear markets? Great question.
For this, I turned to my colleague Senior Research Analyst Anthony Summers, who is a whiz with data on markets and stock gains.
There has been only one significant bear market since The Momentum Alert was launched in late 2001 (I won’t count the 2020 COVID-19 crash because it was so brief and the recovery was so rapid).
During the 17-month bear market that began in October 2007 and ended in March 2009, The Momentum Alert’s top picks included 31 winning trades – six of them for triple-digit gains and 19 for double-digit gains.
Clearly, the stocks of companies that meet the criteria Alex screens for can produce big gains in such markets.
“There’s one thing that really drives companies higher for a sustained period of time, and that’s sharply higher sales and earnings,” Alex says. Find those companies… and you’ll get the returns you want, whether the market turns up, down or sideways.
And if you want to learn more about The Momentum Alert and exactly what Alex is looking for in the stocks he recommends, you’ll want to watch this video.
It could show you how to achieve just the gains you’ve been looking for – in good and bad times.
Enjoy your Sunday,
Matt