This is an excerpt from Tom’s guest article in the InvestorPlace Digest e-letter. To sign up for this newsletter, please click here.
On Tuesday, Target (NYSE:TGT) boss Brian Cornell warned of “a very challenging environment” in consumer demand, sending shares down 6%.
The following day, shares of Lowe’s (NYSE:LOW) sank 7% after posting similarly dire warnings.
In other words, this week saw a continuation of the “downbeat retail CEO parade.”
In my years as a consumer-goods analyst, I’ve found that demand patterns always propagate within sectors. Middle-class shoppers trading down to Walmart (NYSE:WMT) invariably hurt firms like Target and Kohl’s (NYSE:KSS). Profits at Walmart, in turn, get compressed by these deal-seeking shoppers who refuse to buy high-margin items.
And it’s why I warned investors last Sunday in this space to avoid retailer stocks until after earnings season. InvestorPlace.com readers have clearly felt the same way, with some of our most popular articles this week focusing on “crash-related” stocks.
Read on for more on that… and for the latest on the best buys in artificial intelligence…
1. Some Investors Are Bracing for a Crash…
This week, the No. 1 story at InvestorPlace.com, our free stock market news and analysis site, was straight to the point:
The piece by Louis Navellier and his staff outlined seven marginal companies teetering on the edge. Some like business outsourcing firm Exela Technologies (NASDAQ:XELA) are already skipping interest payments, suggesting it will soon enter Ch. 11 bankruptcy. Others like hypergrowth Chinese electric vehicle firm Xpeng (NYSE:XPEV) are getting squeezed by price wars.
It’s a clear sign that investors are nervous about growth stocks, and they aren’t waiting around for Federal Reserve Chair Jerome Powell to save the day.
We’re seeing the same fear spill over into the housing market… tech stocks… bonds… anything that could go belly-up in a downturn.
InvestorPlace.com’s second-most popular article this week, Housing Market Crash Alert: Mark Your Calendars for Feb. 28, warned about declining prices in the real estate market. And on Thursday, Tesla (NASDAQ:TSLA) sank 7% after CEO Elon Musk failed to wow his audience in this company’s Investor Day. (As for bonds, the 30-year Treasury hit 4% for the first time since November this week.)
Why This Matters: InvestorPlace.com readers, and investors everywhere, are nervous about an economic crash… which could mean more selling to come.
2. … While Others Are Gambling for Fun
On the other hand, risk-seeking traders continue to pursue the “meme stock” market… and we continue to see that interest pop up on InvestorPlace.com.
On Tuesday, AMC Entertainment (NYSE:AMC) saw wild swings in its share price after the theater chain announced better-than-expected Q4 earnings. An initial 5% spike would turn into a 20% rout as traders cashed out of a massive number of call options.
Our readers also are looking further afield for deep-value stocks. The site’s other popular articles this week included:
- 7 Penny Stocks to Buy and Hold for the Next Decade
- 3 Deeply Undervalued Growth Stocks Due to Double
- 7 Super Speculative Stocks That Could Make You Very Rich
Why This Matters: The bifurcated market tells us it’s still too early to bet against individual stocks, even if they’re heading to zero. Not only are day traders ignoring the Fed. They’re doubling down on the riskiest of bets.
3. SPACs Are Melting Down
Then there are the so-called special purpose acquisition companies (almost universally known as SPACs), a class of stocks that’s trading in a world of their own. These “blank check” companies were briefly popular in 2021 after taking several high-profile startups public, and then began to fade from view in 2022.
Shares of SPAC Mount Rainier Acquisition (NASDAQ:HUBC) nosedived this week after finalizing its merger with Israel’s HUB Cyber Security on Wednesday. Shares now trade at $1.80, down from its pre-merger $10.
The same day, a U.S. Securities and Exchange Committee (SEC) notice revealed that Digital World Acquisition (NASDAQ:DWAC) — the SPAC behind former President Donald Trump’s Truth Social – could get delisted from the Nasdaq exchange for non-payment of fees. (Trump has called the investigation “egregious conduct and blatant politicization.”)
DWAC shares now trade at around $14, down 85% from its 52-week high.
These stumbles represent a broader pattern of SPACs in recent months. Over a half-dozen of these reverse-merger firms have already declared bankruptcy, despite raising billions from investors. And around 73 mergers have now lost at least 90% of their initial valuation, according to data from Bloomberg.
Growth and meme investors alike seem unsure what to do next. It’s been an enormous destruction of wealth. But for value investors, it’s turning into a hidden gift…
Why This Matters: Lower SPAC valuations mean that value investors have a buffet of low-cost choices. And one of these is featured in Luke Lango and Eric Fry’s AI Super Summit –in which they decode the massive new opportunity that’s emerging in artificial intelligence. That brand-new video event is running now… check it out here.
4. Earnings Season Winds Down
Next week will feature slightly fewer big-name earnings reports. CrowdStrike (NASDAQ:CRWD) and Oracle (NYSE:ORCL) will close out tech, Sea (NYSE:SE) and JD.com (NASDAQ:JD) with e-commerce, and Brazilian giant Petróleo Brasileiro S.A. (NYSE:PBR) in energy. (Some stragglers like FedEx (NYSE:FDX) will report the week after.)
It will be a welcome break for our news-weary readers.
Still, I expect InvestorPlace.com fans will want to watch CrowdStrike. On Thursday, fellow cybersecurity firm Okta (NASDAQ:OKTA) jumped 10% after earnings topped estimates, joining other companies like Cloudflare (NYSE:NET) and Palo Alto Networks (NASDAQ:PANW) in double-digit gains.
CRWD’s beaten-down stock could follow suit.
There is, of course, a chance that markets will punish CrowdStrike’s stock anyway. Enterprise spending has slowed in recent months, and investors have become hypersensitive to guidance revolving around that.
For example, Zscaler (NASDAQ:ZS) tumbled 11% on Friday on these very concerns, despite beating estimates. And that makes straddles on CrowdStrike’s stock a winning play. Expect volatility ahead. And keep an eye on InvestorPlace.com for news and analysis on those reports.
5. Investor Interest in AI Shifts
Finally, this week finally saw investors give a big, fat yawn to several major AI announcements.
Shares of Snapchat owner Snap (NYSE:SNAP) have traded sideways since its AI chatbot announcement on Tuesday. Meta Platforms (NASDAQ:META) stock has done little better on news that the social media firm is revamping its AI team.
Our InvestorPlace.com readers also have shown diminished interest in such attention-seeking firms.
Why This Matters: The rapid reversal means that some high-quality AI plays are now trading at enormous discounts to February’s valuations. And in this week’s AI Super Summit, Luke and Eric highlight one of these high-potential stocks that could soar 1,000% or more.
Conclusion: The Tale of Two Markets Continues
Last week, The Wall Street Journal called the current market a “richcession,” a downturn that specifically affects the better-off. Indeed, incomes for the top-two quintiles of earners have lagged since 2019, and the layoffs we’re seeing reported every day are mostly targeting well-paid white-collar workers.
The effect is also making itself clear in the stock market. The Dow Jones Industrial Average — an index of blue-chip American stocks — is down 1.2% since January. Meanwhile, the riskier Nasdaq-100 is up 9.5% over the same period.
There are companies that have benefited from this pivot from quality to growth. Louis Navellier’s longtime favorite Nvidia (NASDAQ:NVDA) is up 60% this year alone as conservative and speculative investors alike search for greener pastures.
Now, Luke and Eric are adding their own picks to the mix. And at this week’s AI Super Summit, they started to show investors how to find the best AI stocks to buy now.
On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.