Tag: STOCKS

On the surface stocks just seem to be trading calmly in a trading range. Under the surface things are setting up for continuation of the bear market which is why UBS now predicts market bottom around 3,200 for the S&P 500 (SPY). Get 40 year investment veteran, Steve Reitmeister’s, updated market outlook, trading plan and top picks to profit even as stocks head lower.

The S&P 500 (SPY) is virtually frozen week over week. But don’t let that calm exterior fool ya’. There has been a serious spike in volatility since the Fed meeting.

What does it mean?

In a word…NOTHING!

If you are interested in a deeper explanation, with a trading plan for what comes next, then keep on reading this week’s edition of Reitmeister Total Return commentary.

Market Commentary

In last week’s commentary I was preparing folks for the Fed’s Wednesday announcement. Here were the key points that proved to be quite true:

“Let’s start with the Fed’s game plan as clearly spelled out in Chairman Powell’s Jackson Hole speech in August:

• This is a long-term battle to get inflation back to 2% target
• Do NOT expect lower Fed rates through 2023
• Expect “economic pain” which was further described as below trend growth and a weakening of employment.

Now let’s remember that this speech quickly sobered up investors who were enjoying a 18% summer rally up to 4,300. A month later we were making new lows below 3,600.

The Fed cherishes clarity and consistency in their communication. And thus, I say that any investor who thinks there will be a meaningful change in policy announced Wednesday, only a couple months after the Jackson Hole speech, is smoking something that is still quite illegal.

Now we get down to the tricky part. That being to determine which is the more likely scenario going forward.

Scenario 1: Inflation moderates sooner than expected leading to less total Fed intervention and creation of soft landing for economy. In this case, it is not unreasonable to say that we have reached market bottom and new bull market emerging.

Scenario 2: We have already opened up Pandoras box with the economy. Once the wheels are in motion to move towards recession, then the economy can go through a vicious cycle that grinds lower and lower. In this case the bear market is still in play with likely bottom closer to 3,000.

Which scenario is right?

I believe Scenario 2 is much more likely and why I remain bearish. However, Scenario 1 is a possible outcome that needs to be monitored closely.”

(End of 10/28/22 Commentary)

Now let’s remember the key point made by Chairman Powell on Wednesday. That being the window to create a soft landing has narrowed. That statement was the nail in the coffin for stocks as the S&P 500 (SPY) went screaming lower by -2.50% on the session.

Therefore Scenario 1 of a soft landing is even less likely than I stated last week and therefore the bearish Scenario 2 is that much more likely.

None of the news since then has been a positive for stocks including:

• Slew of large layoffs from leading tech companies like Twitters, Meta, Peleton, Ford, Snap, Wayfair, Robinhood. The list is much longer. Read more here if you can stomach it.
• PMI Composite Index for October ends at 48.2 down from 49.5. Even worse is the Services component at 47.8. (Under 50 = contraction).
• NFIB Small Business Optimism Index drops to 3 month low of 91.3 (below 100 is bad news). Here is the key line from NFIB Chief Economist, Bill Dunkelberg: “Owners continue to show a dismal view about future sales growth and business conditions, but are still looking to hire new workers.”
• Commodity prices, especially energy, have spiked once again not helping the inflation picture. See that here.

Reity, if all of this is true…then why are stocks not falling farther, faster?

Because that is not how the market works.

Even during the most raging bull market there are countless pullbacks and corrections before stocks make their next leap forward. That is no different with a bear market. Just everything is 180 degrees in the opposite direction.

Meaning that during bear markets we have tremendous drops followed by rip roaring rallies followed by the next drop to new lows. The sooner you are comfortable with this pattern, the easier it will be to ride out the highs and lows.

So at this stage the price movements are just noise and nonsense. Quite likely investors are awaiting the next obvious catalyst. I suspect that will come on the employment front that has been a bit too robust for investors to fully fret a looming recession.

Simply these newly announced layoffs are just the tip of the iceberg that starts the souring of the employment picture. Once that negative trend gets a foothold, investors know it will only get worse.

That is when we likely start the next leg lower for stock prices. First retesting the recent lows just under 3,600. And after that quite a bit lower.

Remember 34% is the average bear market decline. That equates to 3,180 and probably explains why UBS recently talked about market bottom around 3,200.

What will be the lowest price we reach? And when?

Unknown and unknowable at this time. Yet, I am confident predicting much lower than we are now…and probably another 3-6 months until that final capitulation before the next bull market begins.

As such, keep your bearish bias in place with trading strategies to generate profits as stocks head lower.

What To Do Next?

Discover my special portfolio with 9 simple trades to help you generate gains as the market descends further into bear market territory.

This plan has been working wonders since it went into place mid August generating a robust gain for investors as the market tanked.

And now is great time to load back up as we make even lower lows in the weeks and months ahead.

If you have been successful navigating the investment waters in 2022, then please feel free to ignore.

However, if the bearish argument shared above does make you curious as to what happens next…then do consider getting my updated “Bear Market Game Plan” that includes specifics on the 9 unique positions in my timely and profitable portfolio.

Click Here to Learn More >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares fell $0.10 (-0.03%) in after-hours trading Tuesday. Year-to-date, SPY has declined -18.64%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

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The post The Calm Before the NEXT Stock Storm appeared first on StockNews.com

Restaurant operator The Cheesecake Factory (NASDAQ: CAKE) stock remains buoyant despite reporting a surprise loss in its Q3 2022 earnings. It operates over 310 restaurants under the Cheesecake Factory banner also including North Italia and Flower Child restaurants. The Company continues to be impacted by the economic headwinds of cost and wage inflation in a potential recessionary backdrop as consumers tighten their discretionary spending. The Cheesecake Factory missed on nearly every metric in its recent earnings report and expects commodity inflation of 15% for its fourth quarter, and yet shares were not only able to snap back from lows, but also breakout through its year-long weekly downtrend channel. When stocks remain resilient after a grim earnings report, it usually means Mr. Market thinks the worst is behind them. Cheesecake Factory shares are down (-13%) for the year, which still outperforms the S&P 500 (NYSEARCA: SPY) down (-21%).

Word of Mouth Marketing

To its credit, Cheesecake Factory has been a success story that’s grown a multi-generational customer base solely through word of mouth. Casual dining restaurant brands like Darden Restaurants (NYSE: DRI) with Olive Garden, Brinker International (NYSE: EAT) with Chilli’s or Bloomin Brands (NASDAQ: BLMN) with Outback Steakhouse spend a considerable amount on marketing and advertisements through television, newspaper and digital channels. Although it does keep an active presence on social media, The Cheesecake Factory is unique because it hardly spends any money on advertising.

Sugar Crash

On Nov. 1, 2022, Cheesecake Factory released its third-quarter fiscal 2022 results for the quarter ending September 2022. The Company reported a non-GAAP diluted earnings-per-share (EPS) loss of ($0.03), missing analyst estimates for a profit of $0.30 by (-$0.33). Revenues rose 3.9% year-over-year (YoY) to $784 million, missing analyst estimates for $799.2 million. Same store sales rose 1.1% YoY (missing expectations for 2.8%) and 9.5% compared to 2019. Inflationary pressures took its toll on margins. The Company bought back 889,000 shares for $26.7 million in the quarter and increased their stock buyback authorization by 5 million shares, raising total authorization to 61 million shares. The Company plans to open 13 new restaurants in fiscal 2022. The Company ended the quarter with $372 million in liquidity comprised of $133 million in  cash and $239 million in available credit.

Keep Your Chin Up

Cheesecake Factory CEO David Overton commented, “While our operational performance has been solid and core cost inputs have become more stable and predictable, we continue to face a dynamic and challenging inflationary environment in some areas. As a result, our profit margins in the quarter reflected higher than anticipated operating expenses particularly in utilities and building maintenance.” He continued, “However, we remain highly focused on returning restaurant margins to pre-pandemic levels in the near-term supported by appropriate pricing actions to offset the higher costs while also managing the business for the long-term including increasing market share.” In an attempt to return margins back to pre-pandemic levels, the Company will be raising menu prices by another 2.8% starting in December 2022. This is in addition to the 4.2% price hikes its already administered.  

Impressive Unit Volumes

It’s worth noting that average unit volumes at flagship The Cheesecake Factory brand restaurants track $12 million for the year. This underscores the strong affinity for the brand, even more impressive due to lack of any spend on advertising. Labor productivity and food efficiency exceeded internal expectations but building and maintenance costs were higher than anticipated. The Company opened three new restaurants in the quarter including The Cheesecake Factory in Katy, TX, North Italia in Dunwoody, GA, and its first Fly Bye restaurant in Phoenix, AZ. Fly Bye is its latest fast casual dining concept incorporating Detroit enhanced stretch style pizza and crispy chicken.

Reversing a Year-Long Downtrend Channel

The weekly chart for CAKE stock illustrates the year-long falling downtrend channel that’s been in place since peaking at $51.19 in September 2021 and hitting a low of $26.12 in July 2022. Shares bounced and gained momentum on the breakout through the weekly market structure low (MSL) trigger above $27.92 on July 18, 2022. This propelled shares to breakout through the upper falling trendline at $32.50 on October 17, 2022. The 20-period exponential moving average (EMA) resistance is now sloping up as support at $32.25 followed by the 50-period MA at $34.42. The recent bounce peaked at $36.46 before pulling back through the weekly 50-period MA to form a weekly market structure high (MSH) sell trigger on a breakdown below $31.81. The weekly 20-period EMA is trying to hold support at $32.25. Selling volume spiked in the last week of October but was absorbed by the weekly 20-period EMA. Pullback support levels to watch sit at the $31.81 weekly MSH trigger, $29.96, $27.92 weekly MSL trigger, $26.12 swing low, and $24.86.

The stock market continues to be a challenging environment with rising rates a potent headwind. So far, the economy has been stable enough so that earnings growth has not contracted, but this is unlikely to persist the longer the Fed stays hawkish. This article discusses characteristics of stocks that are likely to outperform and 3 stocks with these characteristics – Lockheed Martin (LMT), Vertex Pharmaceuticals (VRTX), and Elevance Health (ELV).

The stock market dove lower following the FOMC press conference where Chair Powell made it clear that even if the Fed were to slow its pace of hikes, the job is nowhere close to completion. This led to estimates of the ‘terminal rate’ of this hiking cycle to increase following the meeting with 5.5% now the consensus.

Of course, the higher the terminal rate, the more pain that will be inflicted on the economy especially in areas like finance, housing, and real estate. Bonds are likely to suffer, and there are increased chances of a liquidation event if borrowers are unable to meet their obligations which becomes more likely in a high-rate world. Stocks will also suffer which could intensify if earnings materially decline.

These environments mean that investors have to be extremely judicious in terms of making their selections. They should look for stocks whose prospects are disconnected to near-term economic or monetary factors. 

Lockheed Martin (LMT)

LMT is a security and aerospace company that has four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space. The company produces high-tech weapons and defense systems but is best known for its F-35 fighter jets. In addition to these services, LMT provides a wide variety of services for governments all over the world.

In terms of the current environment, LMT is an ideal selection to ‘beat’ the bear market. For one, government budgets and defense spending are much less volatile than other parts of the economy. In fact, defense spending, on a global level, has grown at about an average, annual rate of 5% over the last couple of decades with the only dip being during the dissolution of the Soviet Union in the early 90s. 

Second, companies like LMT often receive long-term contracts and only have a few competitors given that these projects are quite sophisticated and require security clearance. They also tend to have large balance sheets and a long history of paying and raising dividends which also leads to outperformance during periods of economic turbulence.

LMT has an overall B rating, which translates to a Buy in our POWR Rating system. B-rated stocks have posted an average annual performance of 20.1% which compares favorably to the S&P 500’s annual performance of 8.0%. 

In terms of component grades, LMT has a B for Value due to its forward P/E of 14 which is cheaper than the S&P 500 (and less prone to negative revisions). It also has a B for Quality due to being one of the leading aerospace & defense companies. Click here to see more of LMT’s POWR Ratings.

Vertex Pharmaceuticals (VRTX) 

VRTX discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta for cystic fibrosis, where Vertex therapies remain the standard of care globally. The company also focuses on developing treatments for pain, type 1 diabetes, inflammatory diseases, influenza, and other rare diseases.

The company’s cystic fibrosis drugs are poised to continue dominating the market for the foreseeable future due to the disease-modifying potential of the drugs, consistent use by patients, and very little competition. VRTX combination therapies also have lengthy patents, which protect its cystic fibrosis portfolio from generics. There is also potential for its non-cystic fibrosis pipeline, which has exposure to promising areas, such as AAT deficiency, sickle cell disease, and beta-thalassemia.

VRTX has an overall grade of A which equates to a strong Buy rating in the POWR Ratings service. A-rated stocks have posted an average annual performance of 31.1% which compares favorably to the S&P 500’s average annual gain of 8.0%. 

VRTX also has strong component grades including an A for Quality due to 11 out of 19 analysts covering the stock having a Strong Buy rating with only 2 having a Sell rating. It’s also regarded as one of the top companies in the space due to its dominance of the CF market and strong pipeline of potential, blockbuster treatments. Click here to see more of VRTX’s POWR Ratings.

Elevance Health (ELV) 

ELV is a managed care company, providing medical benefits to roughly 44 million members. The company offers employer, individual, and government-sponsored coverage plans. It is also the largest single provider of Blue Cross Blue Shield branded coverage. This sector has also been particularly strong due to a very low unemployment rate which means that the company has seen strong growth in enrollees. 

Further, the pandemic was a boost to its bottom-line as less people were going to the doctor and undergoing procedures. Therefore, the company’s payout ratio declined. Many analysts had been expecting an above-average reading as the economy normalized, but so far this has simply returned to pre-pandemic levels.

Another reason to like managed care stocks is their pricing power as healthcare spending tends to rise at a faster pace than inflation. And, they tend to be less affected by economic slowdowns. Currently, the company is seeing growth from its Medicare Advantage plans and virtual care services. 

With these attributes, it’s not surprising that ELV has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. 

LMT shares . Year-to-date, LMT has gained 38.22%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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The post 3 Stocks to Buy With Rising Recession and Rate Risk appeared first on StockNews.com

Last week, we talked about how it felt like deja vu as the S&P 500 (SPY) embarked on its 3rd bear market rally of the year. Well, today it feels even more that way, as the market is rapidly giving back these hard-fought gains. The market is down 4% from yesterday’s brief spurt higher when it seemed like the FOMC was endorsing a slowdown in the pace of hikes. But, these hopes were dashed during the press conference when FOMC Chair Powell pushed back against this notion and stuck to his hawkish leanings. In fact, he said that the terminal rate could go much higher which was the catalyst behind the selloff. In today’s commentary, I want to break down the Fed meeting and then discuss why it’s a bearish development for the market and confirmation of our bear market thesis. Read on below to find out more….

(Please enjoy this updated version of my weekly commentary originally published November 3^rd, 2022 in the POWR Stocks Under $10 newsletter).

Over the last week, the S&P 500 (SPY) is down by 2%. And, it’s a brutal end to the bear market rally. In fact, it is better evident if we look at the Nasdaq 100, where 2 of the market’s generals have been slaughtered and laid to waste – GOOGL and META.

The index has already given back about 75% of its gains from the bear market rally. In contrast, the losses for the Russell 2000 and S&P 500 are much more muted.

This is a continuation of a theme that we discussed last week – the ‘market of stocks’ is holding up much better than the stock market.

And, it shouldn’t be too surprising given the rise in long-term rates which is more of a headwind for large and mega-cap stocks.

The rise in rates could relent if the market (or the Fed) saw some weakness in inflation data or the economy. That doesn’t seem to be the case although we will learn more about the state of the employment market tomorrow.

But so far, there is no indication of truly broad-based weakness for employment (based on unemployment claims) which means that rates are going to be ‘higher for longer’.

Why the FOMC Was so Bearish for the Markets

One of the reasons behind the ‘bear market rally’ was the belief that the Fed could be on the verge of ‘pivoting’ in terms of slowing its pace of hikes and eventually stopping sometime in early 2023.

Well, this is now in doubt as the stubbornness of inflation and specifically, core inflation makes it clear that hikes are going to continue for some meaningful period of time.

Now, we are back to the initial conditions which made January 2022 so bearish. Rates are rising, while growth is slowing. But growth isn’t slowing fast enough to cause the Fed to pivot.

Thus, rates will keep rising until the economy breaks or inflation breaks.

Rising rates are a potent headwind for the stock market. As we learned this year, the most bullish scenario is a choppy sideways market that gets some nice rallies out of oversold conditions.

While the most bearish scenario is that the S&P 500 (SPY) plunges lower when we get the combination of rising rates and negative news on the earnings or economic front.

Now that this bout of bullishness is over, I expect reality to set in over the next couple of weeks and the market to visit lower levels.

Portfolio Strategy

We are back to a neutral setting and prepared to take more action if the market breaks key levels on the downside which includes the October lows of around 3,600.

I would expect that cyclical stocks would lead on the downside, while defensive stocks and sectors would outperform.

What To Do Next?

If you’d like to see more top stocks under $10, then you should check out our free special report:

3 Stocks to DOUBLE This Year

What gives these stocks the right stuff to become big winners, even in the brutal 2022 stock market?

First, because they are all low priced companies with the most upside potential in today’s volatile markets.

But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system and they excel in key areas of growth, sentiment and momentum.

Click below now to see these 3 exciting stocks which could double or more in the year ahead.

3 Stocks to DOUBLE This Year

All the Best!

Jaimini Desai
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter

SPY shares were trading at $373.35 per share on Friday morning, up $2.34 (+0.63%). Year-to-date, SPY has declined -20.48%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

More…

The post Stock Market Déjà Vu…Part 2 appeared first on StockNews.com

The S&P 500 (SPY) may be in bear market territory, but that doesn’t mean that every stock is down. In fact, there are 3 really good reasons why Casey’s General Stores (CASY) has been in the plus column this year…and likely to stay there. Read on below for why you should be filling up your portfolio with CASY shares at this time.

Let there be no doubt we are in the midst of a bear market. And most stocks will continue to head south.

(If you are unclear about that, please read my latest market outlook commentary, Investors: Wake Up and Smell the Pain (Part 2)

Gladly some stocks will go up. Casey’s General Stores (CASY) is the perfect example. Not only is it up 10% in the past month. More impressively is it up over 15% year to date while the stock market sank brutally into bear market territory.

Why is CASY rising above the pack?

First, because investors cling to more defensive names that are at less risk when a recession is on the horizon. Indeed, CASY fits nicely into the consumer staples camp which is in fashion at times like these.

Second, and more importantly, the profit picture for CASY keeps on improving. The higher EPS picture compels investors to bid up shares given the increased valued found there.

Third, our POWR Ratings model analyzes 5,300 stocks across 118 unique factors to find those built to outperform. Not only is CASY sporting a rating of A (Strong Buy) rating. But even more impressive it is in the top 1% of all stocks across these 118 factors.

All this explains why Wall Street is a big fan of this stock with the analyst at Deutsche Bank pounding the table the loudest with $276 price target. That may not seem that much higher in the grand scheme of things. However, with the bear market far from over, and most stocks likely to fall another 100-20% from here…then that $276 target makes CASY quite compelling at this time.

What to Do Next?

You may be curious to see some of my other top pick articles. In fact, I recently shared my top 2 picks for the year ahead. Check those out below:

1 Top Pick for 2023 Stock Market

#2 Investment for 2023

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com

Editor of Reitmeister Total Return

CASY shares closed at $224.94 on Friday, down $-2.27 (-1.00%). Year-to-date, CASY has gained 14.79%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

More…

The post Casey’s General Stores (CASY) is a Top Pick for the Bear Market appeared first on StockNews.com

How funny it was to see traders get it wrong once again. They misread the Fed announcement at 2pm ET leading to a big 1% rally for the S&P 500 (SPY). Within minutes of Chairman Powell speaking it dawned on every body that things have not gotten better…only worse. And thus the odds of future recession and greater stock downside have greatly increased. This article spells out why. Even better it highlights a game plan and top picks to profit as the market heads lower from here.

After the famed Chairman Powell speech from Jackson Hole in August investors got the memo that the recent rally was unfounded and time to start selling stocks once again. This prompted me to write this article, Investors: Wake Up and Smell the Pain.

Wednesday’s Fed announcement and press conference feels very much the same. That being investors getting ahead of themselves with a 9% rally in October before Chairman Powell lowered the hammer once again.

They say “fool me once, shame on you…fool me twice, shame on me”.

If true, then let’s highlight the key elements from the recent Fed announcement so you understand why we are likely headed towards a recession. And why stock prices will head much lower before this bear market ends.

Market Commentary

There are so many threads to pull on from the Fed statements on Wednesday. However, at the end of the day the key point came out 45 minutes into Chairman Powell’s press conference when he had to admit that the window to create a soft landing had narrowed.

Meaning it is possible to create a soft landing for the economy. But HIGHLY UNLIKELY.

Let’s remember that Fed has a slightly optimistic bias as they don’t want to unnecessarily scare people. And indeed, a soft landing is their preferred outcome. That being to bring down inflation with as little damage to the economy as possible before resuming growth and prosperity.

You could tell that Powell was trying to be as honest as possible with his answer for which he had to begrudgingly admit that the window for creating a soft landing had narrowed. That is because they have raised rates this much with little real effect on taming inflation. Thus, how much harder they will have to push on rates to bring down demand that will most likely lead to recession.

The S&P 500 (SPY) was up about +1% when his speech began. Within minutes investors could finally see that there may have been an improvement in clarity in their statements…but not a real change in policy. From there stocks started heading lower. But once Powell declared the window for soft landing had narrowed…it became a downright bloodbath for stocks ending in a -2.5% session.

The above is my morning after thoughts that would not allow me to get back to sleep before I got typed it out. Meaning above is what is most important for investors to understand. Yet indeed there is more to share.

Let’s roll back to the 2pm ET when the announcement came out.

I was watching CNBC intently and could not take my eyes off the movement of stocks with every new comment made on screen. It was truly amazing how every positive comment was followed by an uptick just seconds later. And every negative comment with a decrease in stock prices.

Most of the commentators were saying how amazing it was that this pivot was taking place to discuss the idea of slowing the pace of rate hikes and then pausing to see how the “lagged effects”. I was screaming at the TV “you guys don’t get it!!!” My wife joked that I was having a mental break.

Gladly CNBC economic commentator Steve Liesman echoed my view that indeed there is an improvement in the clarity of policy steps…but not a real change in the long term Hawkishness of the Fed. This became all the more apparent within minutes of Powell’s prepared speech that echoed many of the points from Jackson Hole just a couple months back. That being…

• This is a LONG TERM battle to create price stability (closer to 2% target inflation)
• Will not ease off too soon as it may reignite inflation before the job is done. “It is premature to discuss pausing”.
• The economy will slow and labor markets will weaken. That is because the Fed intends to weaken demand to get in line with supply. This is how they expect to achieve lower inflation.

All in all, it seems the Fed is still on a path to a restrictive 5% rates with smaller rate hikes in the future. Followed by a pause to see the “lagged effects” of policy. Some are giving this idea of a pause far too much significance.

Just remember there is a 1-2 quarter delayed effect of Fed policy on the economy. So this is just the Fed being logical about reviewing conditions before making their next move as they fear going too far which would be even more detrimental to the economy.

As stated at the top, the most beneficial Fed statement came a full 45 minutes in when many folks may have checked out. He was asked if the window to create a soft landing has narrowed. He unfortunately had to admit that was the case and odds of soft landing are greatly diminished.

Also consider that as of now the Fed sees no real improvement in inflation. Especially true in the labor markets generating wage inflation. And thus, will keep raising rates. And thus, the full measure of those policies is not yet seen in the economy.

In my book there is NO WAY to bet on start of next long term bull market til investors appreciate how bad the economy will get. That is a first half of 2023 event and thus far too early to get bullish.

Once again, given that the Fed was late to the party to raise rates means they are highly unlikely to create a soft landing. They even admitted as much which was truly the nail in coffin for stocks on Wednesday.

So a hard landing means recession with commensurate reduction in stock prices. Thus the bearish thesis is unchanged. Just a matter of when the rest of the market wakes up to the message with correlated lowering of stock prices.

Not just a retest of recent lows. I mean the full measure of pain associated with a bear market.

Remember 34% decline is the average drop for a bear market. That equates to 3,180. However, the valuations for stocks started near record highs…yes even worse than the tech bubble of 1999. Thus, may have to fall a bit further than 3,180 to find bottom.

In the end the investment story is as simple as “Don’t Fight the Fed”.

They are telling you with a straight face that the odds of recession are very high.

BELIEVE THEM!

And trade accordingly with full expectation of lower lows on the way for stocks prices.

What To Do Next?

Discover my special portfolio with 9 simple trades to help you generate gains as the market descends further into bear market territory.

This plan has been working wonders since it went into place mid August generating a robust gain for investors as the S&P 500 (SPY) tanked.

And now is great time to load back up as we make even lower lows in the weeks and months ahead.

If you have been successful navigating the investment waters in 2022, then please feel free to ignore.

However, if the bearish argument shared above does make you curious as to what happens next…then do consider getting my updated “Bear Market Game Plan” that includes specifics on the 9 unique positions in my timely and profitable portfolio.

Click Here to Learn More >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares were trading at $370.94 per share on Thursday afternoon, down $3.93 (-1.05%). Year-to-date, SPY has declined -21.00%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

More…

The post Investors: Wake Up and Smell the Pain (Part 2) appeared first on StockNews.com

Oil stocks have been one of the few bright spots in the S&P 500 (SPY), during the doom and gloom of the 2022 bear market. However, that party could soon be coming to an end. Below I lay out 3 reasons why oil stocks are no longer a buy, plus reveal how you can still profit from oil stocks as they retreat from their recent highs. Read on for more….

Oil stocks have been the one place to make some serious upside over the past year. But even the energy names are looking tired and toppy following a frenzied rally at current levels.

Looks like it is finally time to take some profits and position for a pullback in big oil…

For our discussion, we are going to be using XLE, the Energy Select SPDR ETF, as the proxy for oil stocks. The top two holdings of XLE are the major oil companies ExxonMobil (XOM) and Chevron (CVX). Together these two comprise over 42% of the weighting for the ETF.

Oil Stocks Got Overbought But Are Weakening

The one-year price chart below shows the price action for the XLE. As you can see, XLE got to overbought levels on Wednesday before dropping sharply. 9-day RSI hit 80 then pivoted. MACD neared an extreme before softening. Bollinger Percent B approached 100 then fell.

Shares were trading at a big premium to the 20-day moving average. Previous times these indicators aligned in a similar fashion marked significant intermediate term tops in oil stocks.

I also highlighted the magnitude and length of the prior two rallies (purple lines). Note how they coincide almost identically with the current price action in XLE.

Oil Stocks Getting Extended Versus Stocks Generally

The yearly chart below of oil stocks (XLE) versus the S&P 500 (SPY) shows just how great the outperformance of XLE has gotten to stocks overall. The XLE shows a robust gain of just over 60% in the past 12 months compared to a nearly 17.5% loss for the SPY.

Remember that the major oil stocks such as ExxonMobil and Chevron are in the SPY as well, making the comparative performance even greater once the oil names are stripped out.

Interesting to note that the last time oil stocks hit such heights back in early June led to a significant drop, or mean reversion, in XLE. Look for a similar scenario to unfold with XLE being a relative underperformer to SPY over the coming months.

Oil Stocks Getting Way Ahead of Oil Itself

Oil and oil stocks tend to be well-correlated. This certainly makes intuitive sense. If crude climbs, oil stocks should follow and vice-versa.

That certainly was the case for the first half of the year, as seen in the chart below. Both oil and oil stocks made highs in early June as West Texas Intermediate Crude prices ($WTIC) traded well over $120 barrel.

Since then, however, we have seen $WTIC retreat sharply back under $90 barrel while XLE made a fresh new high. This divergence has now gotten to an extreme. XLE is now out-performing $WTIC by over 50% in the past 12 months.

I expect oil stocks to start to drop in sympathy with lower oil prices into year-end.

Traders and investors looking to position to profit from the anticipated convergence in XLE to lower levels can buy puts and put spreads on oil stocks or sell out-of-the money bear call spreads. We have done just that recently with a put diagonal on ExxonMobil (XOM).

What To Do Next? 

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Here’s to good trading!

Tim Biggam
Editor, POWR Options Newsletter

SPY shares rose $4.99 (+1.34%) in premarket trading Friday. Year-to-date, SPY has declined -20.33%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Tim Biggam

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago. He makes regular appearances on Bloomberg TV and is a weekly contributor to the TD Ameritrade Network “Morning Trade Live”. His overriding passion is to make the complex world of options more understandable and therefore more useful to the everyday trader.

Tim is the editor of the POWR Options newsletter. Learn more about Tim’s background, along with links to his most recent articles.

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The post 3 Big Reasons Why Oil Stocks Are No Longer a Buy appeared first on StockNews.com

While the Fed hinted at slowing the pace of interest rate hikes after increasing rates by another 75 basis points today, the market is expected to remain under pressure as a soft landing still looks impossible. However, this bear market also presents the perfect opportunity for bargain hunters to increase stakes in resilient businesses Walmart (WMT) and Gartner (IT) available at attractive valuations before Wall Street realizes their rebound potential. Read on….

As widely expected, the Fed has raised interest rates by 75 basis points for the fourth consecutive time today. While the central bank intends to reduce the pace in the future, the market volatility is not expected to ease anytime soon, with recession worries remaining intense.

While institutional fund managers on Wall Street sell their stocks and run for the hills to protect their market gains, bargain hunters may consider this golden opportunity to scoop up quality stocks available at discounted valuations.

Therefore, attractively valued stocks of fundamentally strong companies, Walmart Inc. (WMT) and Gartner, Inc. (IT), could be suitable investments before they are in vogue on Wall Street.

Walmart Inc. (WMT)

As a world-renowned big box retailer, WMT offers opportunities to shop an assortment of merchandise and services at everyday low prices (EDLP) in retail stores and through e-commerce platforms. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.

On October 27, 2022, WMT and Netflix (NFLX) announced an in-store expansion of the popular Netflix Hub in more than 2,400 stores. It would offer customers a brand-new streaming gift card, fan-favorite exclusives, and more.

On October 26, WMT announced the completion of the renovations made to the retrofitted regional distribution center in Texas, transforming it into a high-tech automation center. This investment is set to modernize Walmart’s vast supply chain network.

Also, on October 26, WMT and ANGI HomeServices Inc. (ANGI) announced the launch of a new product integration where customers who purchase nearly any Christmas lighting from Walmart can easily add installation by a pro on Angi. Since this bundling would provide additional value to customers, it is expected to impact the topline for both companies positively.

For the second quarter of the fiscal year 2023 ended July 2022, WMT’s total revenues increased 8.4% year-over-year to $152.86 billion. The company’s consolidated net income attributable to WMT increased 20.4% from the prior-year period to $5.15 billion, up 23.7% year-over-year. WMT’s total assets stood at $247.20 billion as of July 31, 2022, compared to $238.55 billion a year ago.

In terms of forward EV/Sales, WMT is currently trading at 0.75x, 57.3% lower than the industry average of 1.75x. Also, its forward Price/Sales multiple of 0.65 compares to the industry average of 1.24.

WMT’s revenue and EPS for the fiscal year ending January 2024 are expected to increase 3.1% and 12.8% year-over-year to $613.68 billion and $6.60, respectively. The company has an impressive earnings surprise history since it surpassed consensus EPS estimates in three of the trailing four quarters.

The stock has gained 8.7% over the past month to close the last trading session at $141.69.

WMT’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

WMT has grade B for Growth, Stability, Sentiment, and Quality. It is ranked #5 of 38 stocks within the A-rated Grocery/Big Box Retailers industry

Click here to see the additional POWR Ratings of WMT for Value and Momentum.

Gartner, Inc. (IT)

IT operates as a global research and advisory company. The company operates through three segments: Research; Conferences; and Consulting. It also provides solutions for various IT-related priorities, including IT cost optimization, digital transformation, and IT sourcing optimization.

For the third quarter of the fiscal year 2022 ended September 30, IT’s revenues increased 15.2% year-over-year to $1.33 billion. During the same period, the company’s adjusted EBITDA increased 8.9% year-over-year to $332 million, while the adjusted net income increased 12.2% year-over-year to $193 million. The company’s adjusted EPS came in at $2.41, up 18.7% year-over-year.

In terms of forward P/E, IT is currently trading at 33.07x, 11.6% lower than its 5-year average of 37.40x. The stock’s forward EV/EBITDA multiple of 21.29 is 1.6% below its 5-year average of 21.64. Also, its forward Price/Sales multiple of 4.44 compares with its 5-year average of 3.59.

Analysts expect IT’s revenue for the fiscal year 2022 to increase 13.9% year-over-year to $5.39 billion. The company’s EPS for the current year is expected to increase 3.1% year-over-year to $9.50. The company has topped the consensus EPS estimates in each of the trailing four quarters, extending its impressive earnings surprise history.

Over the past month, the stock has gained 16.5% to close the last trading session at $325.

IT’s strong fundamentals, and steady growth prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Quality.

It is ranked #4 of 10 stocks in the A-rated Outsourcing – Tech Services industry.

We have also given IT grades for Growth, Value, Momentum, Stability, and Sentiment. Get all IT ratings here.

WMT shares were trading at $140.84 per share on Wednesday afternoon, down $0.85 (-0.60%). Year-to-date, WMT has declined -1.50%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.

With a master’s degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.

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The post 2 Undervalued Stocks to Buy Before Wall Street Catches On appeared first on StockNews.com

Why have stocks jumped from the October lows and more investors have become bullish? But why have many bears refused to throw in the towel? What is it that they see points to lower lows for the S&P 500 (SPY) in the months ahead? Let’s review the updated bull vs. bear debate including how best to trade this tricky market environment.

There are signs things are getting better on the inflation front. And yet signs that things are getting worse on economic front.

This contradiction creates a very confusing gumbo for investors to digest. And likely explains why we continue to teeter on the edge of bear market territory at 3,855.

Let’s talk about these competing themes and how it has created 2 different scenarios for the stock market outlook. One bullish and one bearish.

I share which scenario is most likely and what it means for our trading plan in this week’s Reitmeister Total Return commentary.

Market Commentary

Let’s start with the Fed’s game plan as clearly spelled out in Chairman Powell’s Jackson Hole speech in August:

• This is a long-term battle to get inflation back to 2% target
• Do NOT expect lower Fed rates through 2023
• Expect “economic pain” which was further described as below trend growth and a weakening of employment.

Now let’s remember that this speech quickly sobered up investors who were enjoying a 18% summer rally up to 4,300 for the S&P 500 (SPY). A month later we were making new lows below 3,600.

The Fed cherishes clarity and consistency in their communication. And thus, I say that any investor who thinks there will be a meaningful change in policy announced Wednesday, only a couple months after the Jackson Hole speech, is smoking something that is still quite illegal.

Yet bulls do have some things to cheer such as clear signs of moderating inflation. Almost every key commodity is well off their highs this year. The Bloomberg Commodity Index shows the price trend improving.

This moderation of inflationary pressures is what is behind the hope the Fed will not raise rates as aggressively in the future…and thus would create less damage to the overall economy. This has some folks calling bottom leading to the strong October rally (and hopes for beginning of new bull market).

On the other hand, commodity prices are just one part of the inflationary picture. Don’t forget the “stickier” elements such as house prices and rents. Even more important is wage inflation. That got a JOLT in the wrong direction Tuesday morning (pun intended 😉

See below the trend of job openings tracked in the monthly JOLTs report.  For the previous 5 months it was trending lower which meant fewer job openings…which pointed to hopefully less wage inflation in the future. That is why the jump in that report Tuesday morning was greeted with an immediate stock sell off as it reignited inflationary fears.

Simultaneously to the JOLTs report was the release of ISM Manufacturing. As expected, that continues to move closer to recessionary levels with a reading of 50.2 with forward looking New Orders component a notch lower at 49.2. (Under 50 = contraction)

Here are some of the key statements recorded by ISM to go along with the Manufacturing report to provide color commentary on what is happening now and what it means for the future (bold put in by me for emphasis):

• “Customers are canceling some orders. Inventories of finished goods increasing. Expect some bounce back as some customers may be waiting for commodity prices to decline (further).” [Chemical Products]
• “Growing threat of recession is making many customers slow orders substantially. Additionally, global uncertainty about the Russia-Ukraine (war) is influencing global commodity markets.” [Food, Beverage & Tobacco Products]
• “We have seen a general pullback in available capital budgets from our customers, and that is having a significant impact on our sales in the fourth quarter.” [Machinery]
• “Customer demand has been slower for two months. Production is decreasing our inventory and (we are) implementing forecasts carefully. The headwind seems to be very strong, so we need to be prepared for that.” [Fabricated Metal Products]
• “International conditions loom large and seem very foreboding. Overall, we still think 2023 will be a positive year, with at least some moderate growth.” [Nonmetallic Mineral Products]
• “Lead times are improving. Plastic prices are coming down.” [Plastics & Rubber Products]
• “Prices are continuing a slight decline. Suppliers are trying to hold off decreases, but competition is increasing.” [Miscellaneous Manufacturing]

Net-net these statements reiterate the main point of my commentary today. That being clear signs the economy is slowing. But so too inflationary pressures are easing.

Now let me add one more element to consider before I get to my final conclusions. See the negative trend for the S&P 500 (SPY) earnings outlook as we are now more than half way through Q3 earnings season.

This data shows an across the board reduction in earnings estimates for coming quarters. In particular, you will see that Q1 and Q2 of 2023 are now expected to end with negative growth. This corresponds with a growing number of economists pointing to a recession forming in the first half of 2023.

These statistics were put together by Nick Raich who went on to say that Wall Street is being far too optimistic about the outlook. Meaning that the full measure of estimates cuts are not yet showing up and thus is recommending to clients that they expect more stock price downside until we see more of the typical 15-20% earnings loss that corresponds with recessions.

Now we get down to the tricky part. That being to determine which is the more likely scenario going forward.

Scenario 1: Inflation moderates sooner than expected leading to less total Fed intervention and creation of soft landing for economy. In this case, it is not unreasonable to say that we have reached market bottom and new bull market emerging.

Scenario 2: We have already opened up Pandoras box with the economy. Once the wheels are in motion to move towards recession, then the economy can go through a vicious cycle that grinds lower and lower. In this case the bear market is still in play with likely bottom closer to 3,000.

Which scenario is right?

I believe Scenario 2 is much more likely and why I remain bearish. However, Scenario 1 is a possible outcome that needs to be monitored closely.

Until investors are convinced which scenario is correct, then expect increased volatility as we have seen this past week. Heck, Tuesday alone was a prime example.

That being where the market opens up +1% and then immediately gives it all back and then some after the JOLTs and ISM Manufacturing reports. Then it stuck like glue around 3,855 which is an interesting support/resistance level.

Remember that 3,855 is the bear market dividing line representing a 20% drop from the all time highs of 4,818. That is as good of spot as any to have a tug of war over the future of the stock market.

Given history, the odds of soft landing are very low. Famed investor Mohamed El-Erian talks about the same thing in this new article: Chances of Soft Landing are “Meager”.

Like El-Erian, my outlook skews bearish. That is why my portfolio is constructed to profit as stock prices head lower.

However, I am sleeping with one eye open for the possibility that the soft landing scenario does emerge victorious where I would gladly switch to a more bullish stance.

Unfortunately, with the jobs market still too hot, then that inflationary pressure alone will keep the Fed on a rate hike war path which doesn’t end favorably for the economy and stock prices.

What To Do Next?

Discover my special portfolio with 9 simple trades to help you generate gains as the market descends further into bear market territory.

This plan has been working wonders since it went into place mid August generating a robust gain for investors as the S&P 500 (SPY) tanked.

And now is great time to load back up as we make even lower lows in the weeks and months ahead.

If you have been successful navigating the investment waters in 2022, then please feel free to ignore.

However, if the bearish argument shared above does make you curious as to what happens next…then do consider getting my updated “Bear Market Game Plan” that includes specifics on the 9 unique positions in my timely and profitable portfolio.

Click Here to Learn More >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares were trading at $384.97 per share on Tuesday afternoon, down $1.24 (-0.32%). Year-to-date, SPY has declined -18.01%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

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The post Bull vs. Bear Debate Reignited! appeared first on StockNews.com