Is the Nasdaq decline nearing its end? … what corner of the market Louis likes today … Eric Fry’s “buy” advice … oil appears to be setting up for a big move
Let’s begin today with some optimistic historical data.
We’ll do this with help from our resident data-driven expert, Louis Navellier.
From yesterday’s issue of Platinum Growth Club:
The 3.2% selloff in the S&P 500 on Monday was overdone and now the stock market is grossly oversold…
Our friends at Bespoke showed that when NASDAQ Composite has a 25%+ drawdown like it did between November 19th thru May 9th, the eight previous times this has happened, the NASDAQ Composite has then risen an average of 1.9% (1 month), 11% (3 months), 20.4% (6 months) and 33.5% (1 year).
Also interesting is that the average duration of a 25%+ drawdown was 161 days.
Since the current duration of the 27.6% drawdown between November 19th thru May 9th is 171 days, the current NASDAQ Composite correction is getting a bit old by historical standards.
Though Louis acknowledged inflation remains high, he’s feeling optimistic:
I’m very, very encouraged. I think a lot of the risk has been wrung out of the market.
***If you’re looking to dip your toe back into stocks today, where does Louis suggest you look?
Back to his market update podcast:
If you do want the oasis stocks out there, it’s the stocks with the highest dividends. The top 100 stocks in the S&P with the highest dividend yields, along with the most domestic focus, are doing the best.
The reason “domestic” is an issue is because the dollar is very strong. Multinationals that get paid in eroded currencies are operating in weak economies.
You basically want high dividend domestic stocks. A good example would be something like Costco. Or Lowe’s.
To illustrate Louis’ point, let’s take a look at the Vanguard Dividend Appreciation ETF, VIG.
Though it does hold some multinationals, it also holds domestic leaders including Home Depot, Costco, Procter & Gamble, and Johnson & Johnson.
As you can see below, it’s down 13% in 2022 compared with the 18% loss in the S&P.
Now, you might be saying “both of these are down! I don’t want any part of either of them!”
Fair, but you don’t have to invest in VIG. You can use it as a starting point for finding specific stocks that are performing better by browsing through its holdings.
For instance, one of VIG’s holdings is Northrop Grumman. Despite the pain in the broad market, it’s up 15% on the year.
Now, this focus on high dividend payers is helpful, but we can take it a step further.
***Rather than focus on stocks that have the highest dividend yield, we could look at stocks that have the highest overall shareholder yield
What’s the difference?
Well, dividends are just one way in which CEOs return value to investors.
A CEO could also use free cash flow to benefit investors by buying back shares or reducing outstanding debt. Both of these actions increase the value of the existing shares an investor owns.
The idea behind a shareholder-yield approach is that investing in companies that return the most money to investors in total (as compared to only dividends) leads to higher overall returns.
The Cambria Shareholder Yield ETF, SYLD is engineered with this overall shareholder-yield approach. It also has the same domestic focus that Louis highlighted.
To give you a sense of it, some of its top 10 holdings are Dillard’s, Louisiana-Pacific, Valero Energy, and Mosaic.
Below, we compare SYLD with the S&P and VIG on the year. As you’ll see, SYLD is down just 7%, easily outperforming the other two. Plus, it has spent a fair amount of time in positive territory this year.
And as we did with VIG, you can cherry pick specific holdings within SYLD.
For example, look at Dillard’s. It’s up 23% here in 2022.
Bottom line, if you’re looking for sturdier investments during today’s volatility, check out these domestic high-dividend and high-shareholder-yield stocks.
***Meanwhile, our macro expert Eric Fry is also seeing reasons why today could be a good buying opportunity
Earlier this week, Eric wrote about current chaotic market conditions, highlighting his top three actions to take during market turmoil.
Let’s jump to Eric’s “No. 2”:
Long-term survival does not rely just on a strong defense; it also requires an effective offense.
That’s where “Forever Stocks” come into play – stocks that we nickname our “Top 10” or “Great 8” and hold a sacrosanct position in our portfolio.
Obviously, Forever Stocks will suffer during a severe bear market, just like ordinary stocks. So, any investor who holds onto stocks like these during a sell-off is likely to suffer mark-to-market losses.
But these losses are a small price to pay for big long-term gains… assuming the rest of your portfolio is well-positioned…
Conventional wisdom says that market highs are the worst time to buy stocks… which is the opposite of what we’re experiencing currently, making today — or any day in the near future — a good time to buy them.
Bottom line – great stocks bounce back. They always do. The challenge is simply pulling the trigger in the midst of fear-soaked market conditions.
Back to Eric on this:
Investors are fleeing the market as they would a spewing volcano, selling off their investments after seeing them tick down, down, down…
But, and as I’ve mentioned before, the best opportunities can emerge in times of turmoil.
And this is not just an opinion; following every single market crash, the market has rebounded to new highs thereafter.
Eric points out that this isn’t a license to throw caution to the wind. But prices on some of the world’s best stocks have been slashed here in 2022. It’s important to see this for the opportunity it is.
By the way, for those curious, Eric’s other two actions to take today are: Make sure the weightings of your asset allocation are to your liking and reflect your investment temperament. And simply say “no” to the unnecessary market risk that comes with investing in any stock you’re not crazy about.
***Finally, one area of the market that both Louis and Eric are wildly bullish on today is oil
This is no surprise for regular Digest readers.
Over the past several months, we’ve featured analysis on the energy markets from both Louis and Eric suggesting oil prices will remain elevated, which is driving huge returns for top-tier oil plays.
Well, it appears a big move could be coming for oil.
Below, we look at the six-month chart of West Texas Intermediate Crude (WTIC).
We’ve added trendlines to help you see what’s been happening – specifically, price is compressing into what’s called a “pennant” pattern.
Often, the price of the underlying asset will explode out of such a pennant. Since the prior major direction of oil was up, that’s the prevailing expectation of the coming move. Of course, there are no guarantees.
By the way, one interesting note…
Yesterday’s CPI reading was slightly down. A big reason for that was because energy prices were down in April.
Look again at the chart above. You’ll see that price drop reflected in the readings from March to April.
But if oil breaks north out of this pennant shape later this month, it’s going to put new pressure on next month’s CPI reading. And that has the potential to impact the Fed’s monetary policy.
Lots of interrelated, moving parts here.
We’ll keep you updated.
Have a good evening,