When it comes to investing strategy, I am most simply a “growth guy.” That means I recommend stocks with strong sales and earnings, proving they are growing and healthy. I watch charts and I certainly don’t ignore undervalued stocks, but earnings and revenue are my guiding factors when it comes to buying stocks.
But what about the big economic picture? After all, stocks don’t exist in a vacuum and investors much acknowledge the climate on Wall Street when buying and selling stocks. Well, let’s just say that I’m an opportunist who finds the strongest part of any market. Even if things get choppy, there are always a few sectors or fundamentally strong companies that are bucking the trends.
Speaking of trends, we are now entering a time of favorable seasonal cycles – so buying stocks should become even more profitable for investors. The first is quarterly: The beginning of second-quarter earnings season. So far, the corporate news is very good, with better-than-expected earnings. We are clearly in an environment in which the “smart” money is chasing the best stocks. We will keep our eye on those stocks that sustain strong earnings momentum as the overall stock market earnings growth rate decelerates, due to more difficult year-over-year comparisons and moderating economic growth.
The second cycle is economic. About 12-18 months after previous recessions officially ended, nervous businesses finally start hiring. Wall Street has very low expectations for job creation but private sector job creation has steadily improved in the past two months. The private sector created 83,000 jobs in June, up from a revised 33,000 in May. And last Wednesday, the Labor Department reported that first time jobless claims fell by a better-than-expected 29,000 to 429,000 in the previous week – a welcome turnaround.
The third cycle is political. The Presidential Cycle is the most influential and predictable cycle that affects the stock market. Historically, Wall Street starts celebrating Congressional “gridlock” even before the mid-term elections, starting around September. The stock market has historically rallied strongly from late September in the mid-term election year until the next Presidential election. If history repeats, we may see a 26-month rally starting soon. (Of course, we may see a summer swoon before that rally starts.)
In summary, we remain bullish due to global growth and a cyclical U.S. market recovery propelled by (1) a strong earnings announcement season, (2) gradually improving private (vs. government) job creation and (3) the impending mid-term elections, launching a 26-month rally until the next Presidential election. That makes it a great time to buy stocks right now.
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