This week the market took us on quite the roller coaster ride. The sharp ups and downs were enough to make even a seasoned investor’s stomach turn.
But if you were prepared — if you invested in companies with strong fundamentals and positive forward outlook — hopefully you were able to sleep a little bit easier.
In today’s Market360, we’ll review this week’s market gyrations, and I’ll share where I am seeing pockets of market strength…
Rough Start to a Rough Week
On Monday, poor investor sentiment weighed heavy on the stock market. All the major indices opened more than 1% lower, with the S&P 500 down 2.4%, the Dow Jones Industrial Average down 1.5% and the NASDAQ down 3.2%.
The fact of the matter is the market continues to have a sentiment problem. There is a lot of noise affecting stock prices right now — from fear of future Fed action, continued COVID-19 lockdowns in China resulting in more shortages and the Russia-Ukraine war. In the market, the main problem was that energy and commodity stocks were also weak. While overall they’ve been a bit of ballast for the stocks I recommend in Growth Investor Buy Lists due to their stunning quarterly earnings results, they were being hit because crude oil prices are down.
But as I shared with my Growth Investor subscribers in a Special Market Podcast on Monday: Energy, energy-related and commodity stocks are still elevated — and they are going to continue to release record earnings, which should drive their shares higher.
And… by Tuesday the market was bouncing higher in anticipation of the upcoming inflation numbers to be released Wednesday morning. All the major indices opened significantly higher. While the initial bounce tapered off a bit, many of my fundamentally superior stocks continued to trek higher. The fact is, as I always say, good stocks bounce like fresh tennis balls — and my stocks represent the crème de la crème.
Then on Wednesday, inflation numbers were released. The key takeaway was that consumer inflation is cooling off a bit. The Consumer Price Index (CPI) rose 8.3% year-over-year in April, down from the 8.5% year-over-year increase in March, with energy prices accounting for the bulk of the drop.
As we discussed yesterday, while the CPI showed signs that inflation hit its peak, it still came in a little higher then the 8.1% that was expected. As a result, the markets traded lower by the end of the day.
By Thursday, Producer Price Index (PPI) numbers came in. The PPI climbed 11% year-over-year. However, this is down slightly from the 11.5% annual increase in March.
Even though both the CPI and PPI show that inflation is slowing, it is still elevated. And folks are understandably upset about high food and gas prices. As a result, we had a sloppy opening Thursday morning.
As I write this morning, the markets are roaring back, with the S&P 500 up 2.2%, the Dow up 1.3% and the tech-heavy Nasdaq up 3.6%. Today’s strength is a welcome reprieve from the broader market weakness earlier in the week.
Amidst the Turmoil Check Out These Safe Haven Stocks
The bears would have investors believe that now is the time to sell, but the truth of the matter is that there’s no reason to run for the sidelines because the market fundamentals are still working.
We know this because of the market’s reaction to earnings. As we’ve seen throughout this earnings season, good earnings reports are being rewarded and negative earnings results are being punished.
Just take a look at ICL Group Ltd. (NYSE:ICL). The stock surged out of the gates on Wednesday morning after the company smashed analysts’ expectations for the first quarter. Thanks to increased demand and elevated prices for specialty minerals, ICL Group was able to overcome inflationary pressures and supply chain constraints during the quarter. Company management commented, “All of our specialty businesses achieved new quarterly results records, as all four of our divisions contributed to our significant growth and new ICL record sales and EBITDA.”
For the first quarter, sales jumped 67% year-over-year to $2.53 billion, up from $1.51 billion in the same quarter a year ago. Industrial product sales accounted for $494 million, potash sales totaled $795 million, phosphate solutions sales came in at $798 million, and ag solution sales were $566 million.
First-quarter earnings soared 345% year-over-year to $0.49 per share, compared to $0.11 per share in the first quarter of 2021. Analysts’ estimates called for $0.29 per share, so ICL Group beat earnings estimates by 69%.
ICL rallied more than 10% on Wednesday, while the stock market turned lower after fully digesting the CPI report. The S&P 500, Dow and NASDAQ fell 1.6%, 1% and 3.2%, respectively.
The truth is, fundamentally this is the best buying opportunity in a decade.
The U.S. still has a very strong consumer. Unemployment claims are at a 52-year low. So, right now, our best defense is a strong offense of fundamentally superior stocks.
If you’re looking for an oasis right now, that would be in high dividend domestic stocks, as well as fundamentally superior, energy, food, fertilizer and semiconductor stocks. Investing in these stocks is a great way to hedge against inflation and the continuing market volatility.
If you’re not sure where to look, then consider my Growth Investor Buy Lists. My Buy Lists are chock-full of fundamentally superior commodity plays that are prospering in the current market environment.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
ICL Group Ltd. (ICL)