Issues
The banking situation has changed the Fed. The damage done by previous rate hikes is making the Central Bank far less hawkish. The risk is shifting from the Inflation/Fed cycle to recession. The end of this cycle may have been expedited. And stocks could rally out of this bear market sooner than thought.
Of course, the banking issues might not be over yet. And the timing and severity of a possible recession is still unknown. Things may get worse in the market before they get better. For now, defensive stocks that can maintain earnings growth in a worsening economy or recession are better places to be.
Of course, the banking issues might not be over yet. And the timing and severity of a possible recession is still unknown. Things may get worse in the market before they get better. For now, defensive stocks that can maintain earnings growth in a worsening economy or recession are better places to be.
Stocks have rallied so far this year on optimism that we can get through this inflation and Fed rate hiking cycle without much economic pain. That’s what seems to be happening so far. But this latest “soft landing” rally is facing a formidable foe – history.
Rate hikes almost always slow the economy. But there is typically a long lag time. Since 1961, the Fed has embarked on nine inflation-busting, rate-hiking cycles. Eight of those cycles have led to recession. The yield curve has inverted, a phenomenon that has almost always preceded a recession.
Rate hikes almost always slow the economy. But there is typically a long lag time. Since 1961, the Fed has embarked on nine inflation-busting, rate-hiking cycles. Eight of those cycles have led to recession. The yield curve has inverted, a phenomenon that has almost always preceded a recession.
This year was always going to be better than last year. And it’s off to a great start. But it is unlikely that stocks muster a sustained rally out of this bear market until there is more clarity on the extent and timing of an economic bottom.
That said, the current market still offers opportunities. Cyclical stocks have rallied and, for the first time in a long time, there is an opportunity to sell a covered call on one of the portfolio’s cyclical stocks. In this issue, I highlight a covered call opportunity in Visa (V) after the stock has rallied.
I also highlight a fantastic income stock that has likely already made its own low even if the market turns south again. It sells at a dirt-cheap valuation with a high and safe dividend and has recently added momentum to the mix.
That said, the current market still offers opportunities. Cyclical stocks have rallied and, for the first time in a long time, there is an opportunity to sell a covered call on one of the portfolio’s cyclical stocks. In this issue, I highlight a covered call opportunity in Visa (V) after the stock has rallied.
I also highlight a fantastic income stock that has likely already made its own low even if the market turns south again. It sells at a dirt-cheap valuation with a high and safe dividend and has recently added momentum to the mix.
Stocks trend higher over time. And history clearly illustrates that bear markets are ideal times to invest ahead of the next bull market. The average bear market is about 15 months long. And this one is already almost a year old. There is a high-percentage chance that a rally ignites in 2023 that will lead us out of this bear market and into the next bull market.
The recent rally has lifted call premiums to the highest levels in many months as more investors are willing to bet on higher prices going forward. But unless this current rally leads us to the next bull market, it’s probably nearly over. It’s a great time to lock in a high income while premiums are fat, and stocks may be close to a near-term high.
The current market is creating a golden opportunity to get a high income in an otherwise crummy market. Let’s grab it. In this issue, I highlight two call-writing opportunities in stocks that have rallied strongly since being added to the portfolio. While I like the prospects of these stocks over the next year, it’s time to err on the side of income.
The current market is creating a golden opportunity to get a high income in an otherwise crummy market. Let’s grab it. In this issue, I highlight two call-writing opportunities in stocks that have rallied strongly since being added to the portfolio. While I like the prospects of these stocks over the next year, it’s time to err on the side of income.
The market has likely not bottomed yet. The current rally will unlikely be sufficient to drive us out of this bear market ahead of continued high inflation and likely recession in the months ahead.
However, while the market indexes may have further downside, one area of the market may well have already bottomed, namely interest rate-sensitive stocks.
Previously buoyant defensive stocks got clobbered as interest rates spiked to the highest levels in 15 years. But the evidence is overwhelming that the economy is likely headed toward recession in the months ahead. Recessions put downward pressure on interest rates. As the economy worsens and inflation declines, rates are likely to move lower, negating most of the damage done to conservative dividend payers.
There are powerful reasons to believe that interest rate-sensitive stocks may have already bottomed. In this issue, I highlight one of the very best utilities on the market. It’s near the 52-week low after an overdone selloff and should be highly resilient in a recession.
However, while the market indexes may have further downside, one area of the market may well have already bottomed, namely interest rate-sensitive stocks.
Previously buoyant defensive stocks got clobbered as interest rates spiked to the highest levels in 15 years. But the evidence is overwhelming that the economy is likely headed toward recession in the months ahead. Recessions put downward pressure on interest rates. As the economy worsens and inflation declines, rates are likely to move lower, negating most of the damage done to conservative dividend payers.
There are powerful reasons to believe that interest rate-sensitive stocks may have already bottomed. In this issue, I highlight one of the very best utilities on the market. It’s near the 52-week low after an overdone selloff and should be highly resilient in a recession.
Markets go up and down. Economies boom and bust. Investors get scared and they get greedy. But one of the few constants in an ever-changing investment landscape is the need for income. And investor demand for income is growing as the fastest growing segment of the population is 65 and older and retired.
The demand for the very best income stocks should remain strong. Also, during sideways and down markets, dividends account for most of the total market return. In problematic decades, dividends have almost completely offset market price declines.
It’s true that dividend stocks can still fall in a down market. But the long-term trend for the market is higher. History clearly shows that bear markets are the best time to get in cheap ahead of the next bull market. Meanwhile, dividends provide an income and less volatility while you wait.
The demand for the very best income stocks should remain strong. Also, during sideways and down markets, dividends account for most of the total market return. In problematic decades, dividends have almost completely offset market price declines.
It’s true that dividend stocks can still fall in a down market. But the long-term trend for the market is higher. History clearly shows that bear markets are the best time to get in cheap ahead of the next bull market. Meanwhile, dividends provide an income and less volatility while you wait.
Although uncertainty in the market is growing, there are still strong income stocks out there. But we must be careful to find the right ones. A good stock needs to be resilient in a continuing recession, yet able to thrive amidst high inflation, or both, or neither. In this issue, I highlight such a rare bird.
The portfolio is also eliminating a cyclical position and adding a more defensive one. At the same time, we are seizing upon recent strong performance in another stock and selling a call to lock in a high income in this uncertain market.
The portfolio is also eliminating a cyclical position and adding a more defensive one. At the same time, we are seizing upon recent strong performance in another stock and selling a call to lock in a high income in this uncertain market.
This week’s GDP number should confirm that we are in a recession. That might be good news for the market.
The worst situation for stocks tends to be a “looming recession”. Stocks tend to fall most as a recession approaches and in the early phases of an actual recession. Stocks also tend to recover before the economy because the market anticipates six to nine months into future. In a typical recession, stocks fall before it hits and recover before it’s over.
If this week’s number confirms that we are in a recession that began at the beginning of the year, the market should be in a more desirable position than if a recession is anticipated later this year or early next year.<.p>
The recent rally in technology is encouraging. I mentioned in last month’s issue that technology stocks had fallen before the overall market and were likely to recover before most other sectors. Since then, portfolio position Qualcomm (QCOM) is up nearly 30%.
This month’s issue highlights another technology stock, Intel (INTC) . The stock is still very cheap with bright prospects in the future. If the market turns south again, the stock should hold up better than the technology sector and be a solid longer-term hold. But if this rally in technology proves to be lasting and QCOM gets called away, we will still have another tech stock that should move higher as well and provide a great call writing opportunity.
The worst situation for stocks tends to be a “looming recession”. Stocks tend to fall most as a recession approaches and in the early phases of an actual recession. Stocks also tend to recover before the economy because the market anticipates six to nine months into future. In a typical recession, stocks fall before it hits and recover before it’s over.
If this week’s number confirms that we are in a recession that began at the beginning of the year, the market should be in a more desirable position than if a recession is anticipated later this year or early next year.<.p>
The recent rally in technology is encouraging. I mentioned in last month’s issue that technology stocks had fallen before the overall market and were likely to recover before most other sectors. Since then, portfolio position Qualcomm (QCOM) is up nearly 30%.
This month’s issue highlights another technology stock, Intel (INTC) . The stock is still very cheap with bright prospects in the future. If the market turns south again, the stock should hold up better than the technology sector and be a solid longer-term hold. But if this rally in technology proves to be lasting and QCOM gets called away, we will still have another tech stock that should move higher as well and provide a great call writing opportunity.
There is overwhelming historical evidence that buying good stocks in bear markets is a highly successful long-term strategy. After all, it’s better to buy stocks cheap. And the market always trends higher over time. The truth is that buying stocks in a bear market is the most successful investment strategy ever devised.
Of course, the market may fall further before it recovers. You don’t have to pick one day and invest all your cash. You can trickle in over time. You can invest just a little right now. If the low is already in, you got a great price. If the market falls more, you put more money in later. Over time it will work out.
In this issue, I highlight a portfolio position in the technology sector. The sector plunged into a bear market before the S&P and will likely be one of the first sectors to lead the way back up. The sector was already down less than the overall market in last week’s tumult.
Of course, the market may fall further before it recovers. You don’t have to pick one day and invest all your cash. You can trickle in over time. You can invest just a little right now. If the low is already in, you got a great price. If the market falls more, you put more money in later. Over time it will work out.
In this issue, I highlight a portfolio position in the technology sector. The sector plunged into a bear market before the S&P and will likely be one of the first sectors to lead the way back up. The sector was already down less than the overall market in last week’s tumult.
It’s too soon to buy new stocks aggressively. But there is a safer place in the meantime to generate a high yield without much downside in the near term.
In this issue, I highlight a stock from the energy sector, the only market sector having a good year. Yet, the stock is not overvalued or overpriced. It provides a high yield without much downside if the market decline continues. And the price is likely to trend higher over the rest of the year.
In this issue, I highlight a stock from the energy sector, the only market sector having a good year. Yet, the stock is not overvalued or overpriced. It provides a high yield without much downside if the market decline continues. And the price is likely to trend higher over the rest of the year.
Stocks are turning distinctly more bearish in the near term as slower growth in China hits a market that was already teetering in anticipation of a more aggressive Fed.
But the selloff in the indexes doesn’t reflect all stocks. Some stocks have more downside left. Others will likely hold their own even if the market keeps falling. And still other stocks have already been oversold. These stocks should have less downside from here than the overall market, and recover much more quickly when the selling abates.
In this issue, I identify two oversold stocks in the portfolio. These are stocks that have already been crushed and sell at vastly reduced prices despite continuing strong earnings growth. While these stocks may fall further in the weeks ahead if the market gets uglier, I believe they both sell at deep discounts compared to where their prices are likely to be later in the year.
But the selloff in the indexes doesn’t reflect all stocks. Some stocks have more downside left. Others will likely hold their own even if the market keeps falling. And still other stocks have already been oversold. These stocks should have less downside from here than the overall market, and recover much more quickly when the selling abates.
In this issue, I identify two oversold stocks in the portfolio. These are stocks that have already been crushed and sell at vastly reduced prices despite continuing strong earnings growth. While these stocks may fall further in the weeks ahead if the market gets uglier, I believe they both sell at deep discounts compared to where their prices are likely to be later in the year.
Updates
Isn’t this fun? The market gave us whiplash last week. The crash last Monday was the worst day for the market in years. It seemed like the sky was falling. But investors sobered up and the market closed flat for the week.
The tumult of last week was just a noisy road to nowhere. But the market also again showed great vulnerability to negative headlines. And while all that recession talk last week seems to have been clearly overblown, a recession is on the radar now. The market is resilient as usual. But don’t get too comfortable.
The tumult of last week was just a noisy road to nowhere. But the market also again showed great vulnerability to negative headlines. And while all that recession talk last week seems to have been clearly overblown, a recession is on the radar now. The market is resilient as usual. But don’t get too comfortable.
A week ago, the main issue with the market seemed to be earnings and if the reports would save or doom the rally. But we have since been completely blindsided by fears of recession.
While earnings have so far not been impressive, the main event has suddenly become recession. Last week, the most recent jobs report was far worse than expected. There were numbers within that report that have reliably portended every recession since the 1970s. As a result, the stock market plunged, and interest rates crashed. The benchmark 10-year Treasury rate moved below 4% and Wall Street has assigned a 95% chance of the Fed cutting the Fed Funds rate by 50 basis points in September.
While earnings have so far not been impressive, the main event has suddenly become recession. Last week, the most recent jobs report was far worse than expected. There were numbers within that report that have reliably portended every recession since the 1970s. As a result, the stock market plunged, and interest rates crashed. The benchmark 10-year Treasury rate moved below 4% and Wall Street has assigned a 95% chance of the Fed cutting the Fed Funds rate by 50 basis points in September.
The market seems to have regained its footing since the selloff last week. It’s still flat for the month of July, but it isn’t down, which is encouraging.
Technology hit a snag with bad news from China. We’ll see if earnings can overcome that weakness as the AI catalyst comes front and center again. But the bigger story in July was the broadening rally. An improving interest rate prognosis prompted a strong rally in the previously beleaguered interest rate-sensitive stocks in REITs and utilities.
Technology hit a snag with bad news from China. We’ll see if earnings can overcome that weakness as the AI catalyst comes front and center again. But the bigger story in July was the broadening rally. An improving interest rate prognosis prompted a strong rally in the previously beleaguered interest rate-sensitive stocks in REITs and utilities.
Wow. Just wow. Not only has this market rally continued to forge on, it’s broadened out too. After a 14.5% gain in the first half of this year, the S&P is putting together an impressive July with a better than 3% gain so far.
The latest leg of this rally has been sparked by a better-than-expected June CPI report. Interest rate optimism abounds. Consensus now expects a Fed rate cut before the end of the year and an increased expectation that overall interest rates have peaked and are likely to trend lower for the rest of the year.
The latest leg of this rally has been sparked by a better-than-expected June CPI report. Interest rate optimism abounds. Consensus now expects a Fed rate cut before the end of the year and an increased expectation that overall interest rates have peaked and are likely to trend lower for the rest of the year.
This market rally keeps forging on no matter what. Technology cooled off but, no problem, other sectors are picking up the slack.
Interest rates have likely peaked. The chances of a Fed rate cut before the end of the year have increased. And the economy is still solid. Sectors rotate, headlines come and go, but as long as the main ingredients of future lower rates and a still-decent economy prevail, the market should be good.
Interest rates have likely peaked. The chances of a Fed rate cut before the end of the year have increased. And the economy is still solid. Sectors rotate, headlines come and go, but as long as the main ingredients of future lower rates and a still-decent economy prevail, the market should be good.
The market continues to hover near the all-time high. The S&P 500 finished the first half of the year up 14.5%. That’s a not-too-shabby 29% annual pace.
As I mentioned earlier, I believe it is unlikely that the S&P will finish the year up 29%. That means market returns must at least flatten out somewhat going forward. It’s also true that the technology rally has petered out in the last few weeks.
As I mentioned earlier, I believe it is unlikely that the S&P will finish the year up 29%. That means market returns must at least flatten out somewhat going forward. It’s also true that the technology rally has petered out in the last few weeks.
Just when it looked like the rally was petering out, the market is having a great June so far. The S&P is up about 5% in June after making four consecutive record closes last week. The index is now up 14% so far this year, and it’s not even half over.
It’s a new high! April was down. May was up. And June has been an up month so far. Hopefully, June will follow through and be another good month, but I’m still expecting a flatter market for a while.
The market goes back and forth with the interest rate narrative. But I don’t expect a resolution on that issue any time soon, or at least for the rest of the summer. Either the economy has to slow, or the Fed is going to at least leave rates where they are. But investors still insist on expecting rate cuts before the end of the year even though the economy looks strong.
The market goes back and forth with the interest rate narrative. But I don’t expect a resolution on that issue any time soon, or at least for the rest of the summer. Either the economy has to slow, or the Fed is going to at least leave rates where they are. But investors still insist on expecting rate cuts before the end of the year even though the economy looks strong.
The market has leveled off since the middle of May. I expect more of the same going forward.
The S&P 500 pulled back in early April after a five-month rally as sticky inflation soured the interest rate narrative. The index then recovered to new highs in the middle of May on an improved interest rate outlook. But stocks have since leveled off as the interest rate outlook got stuck in the mud.
The S&P 500 pulled back in early April after a five-month rally as sticky inflation soured the interest rate narrative. The index then recovered to new highs in the middle of May on an improved interest rate outlook. But stocks have since leveled off as the interest rate outlook got stuck in the mud.
The market dodged a bullet. And the rally forges on.
After a 5% dip from the high, stocks started climbing again in mid-April and have regained all the losses. Last week’s inflation report had the potential to derail the recent rally. But it didn’t. And the good times are continuing.
After a 5% dip from the high, stocks started climbing again in mid-April and have regained all the losses. Last week’s inflation report had the potential to derail the recent rally. But it didn’t. And the good times are continuing.
The market has regained its footing. After a 5% pullback in the earlier part of April, the S&P 500 has since regained nearly all that was lost, and the index is within bad breath distance of the high.
Earnings have been good. With 92% of S&P 500 companies having reported, earnings increased an average of 5.4% over last year’s quarter. But it’s better than that. If you take out the report of Bristol-Myers Squibb (BMY), average earnings growth would be 8.3% for all the other stocks on the index. That’s a healthy gain.
Earnings have been good. With 92% of S&P 500 companies having reported, earnings increased an average of 5.4% over last year’s quarter. But it’s better than that. If you take out the report of Bristol-Myers Squibb (BMY), average earnings growth would be 8.3% for all the other stocks on the index. That’s a healthy gain.
The market has shown some renewed strength over the past several days, particularly among interest rate-sensitive stocks. The Fed met last week, and the market dug this month’s vague insinuations.
The rally sputtered in April after sticky inflation soured the falling interest rate narrative. But last week the Fed Chairman indicated that the next Fed Funds rate move would most likely be a cut and not a raise. Although a hike wasn’t expected, investors like hearing the Fed say it. The statement also combines with recent news of weaker economic growth and a slowing job market.
The rally sputtered in April after sticky inflation soured the falling interest rate narrative. But last week the Fed Chairman indicated that the next Fed Funds rate move would most likely be a cut and not a raise. Although a hike wasn’t expected, investors like hearing the Fed say it. The statement also combines with recent news of weaker economic growth and a slowing job market.
Alerts
As I mentioned in this week’s update, CEG has some technical support around the $225 per share range. The stock had been flying high but has been under considerable pressure recently. CEG (currently around $227 per share) is down over 35% from the high made in late January.
The idea is to sell a covered call, meaning you already own or you just purchased V on the buy recommendation.
The first issue of Cabot Income Advisor just came out yesterday. The idea is to sell a covered call, meaning you already own or you just purchased IIPR on the buy recommendation.