Are we already in a bear market? … “It’s not so much a stock market as it is a market of stocks” … one sector flying high … another sector looking poised for recovery
Will a bear market strike soon?
It already has, according to our macro expert, Eric Fry.
From Eric’s latest issue of Investment Report:
Although the S&P 500 Index has not suffered a setback greater than 10% since the COVID-triggered washout of March 2020, many individual stocks and sectors have – including several of the sub-sectors that comprise the S&P 500 itself.
To qualify as a bear market, an index or sector must fall at least 20% from a price peak. Based on that simple definition, no fewer than two-thirds of the 3,650 stocks inside the Nasdaq Composite have suffered a bear-market decline during the last 12 months!
And at this very moment, more than half of the stocks in the Nasdaq are languishing 40% or more below their peak levels of the last year.
That’s not what a bull market looks like.
Given this analysis, what can we say about the market today?
Well, there are good investment opportunities out there.
That’s probably not what you were expecting to read.
But the reality is the market is offering some attractive investment set-ups right now. Certain sectors are enjoying strong bull runs, while other beaten-down sectors are beginning to look interesting.
The question is “where are you looking?”
***One sector that’s flying high and one that might be starting a strong move north
To help contextualize today’s manic market, let’s revisit something our CEO, Brian Hunt, wrote back in April of 2020:
Around the InvestorPlace offices, we often say, “It’s not so much a stock market as it is a market of stocks.”
We say this because the stock market is made up of many different industries and many different companies. Various economic climates affect industries differently. Something good for one industry isn’t necessarily good for another industry.
For example, the early stage of the coronavirus crisis was great for grocery stores because people rushed to stock up on food … but it was terrible for cruise line operators and airlines …
Instead of thinking of “the market” as a monolithic entity into which you put money, we prefer to focus our attention on individual industries and companies. There’s quite a lot happening behind the curtain we call the Dow Jones Industrials Average.
As I write Tuesday morning, the Nasdaq is down roughly 12% from November. But does that matter if your specific tech stocks are all down 50%+?
Meanwhile, the S&P is down about 6% here in 2020. But who cares if your specific S&P stocks are all up 10%?
The point is, forget “the market.” It’s too broad, hiding the wildly different fortunes of individuals stocks and sectors. So, let’s get more granular.
Where is the money today, and which sectors are turning the corner and might be making the money tomorrow?
Well, one sector that’s rolling in it, which we’ve regularly profiled here in the Digest, is the oil sector (and oil-related businesses).
In the past few days, we’ve seen 52-week highs from BP, Chevron, Enbridge, EnLink Midstream, Halliburton, Marathon Oil, NexTier Oilfield Solutions, Occidental, PetroChina, Targa, Valero Energy, Baker Hughes, and Diamondback Energy.
In the medium-term, we’re still very bullish on oil. As we’ve noted in past Digests, there remains huge global demand, despite the rise of green energy.
But in the immediate future, be cautious. News this morning is that Russia is pulling back troops from the Ukrainian border. This is taking pressure off oil prices. As I write, WTI crude is down 4% on the day and related oil and oil-services companies are selling off as traders continue taking profits.
But once prices stabilize, we expect this trade has more juice in it.
For one reason why, let’s return to Eric.
In his other service, The Speculator, he has an active oil trade today (already up 24% since November 30). Here is part of his reasoning for recommending the trade, which clearly is longer-term and has nothing to do with Russia/Ukraine:
Even though electric vehicles will capture a growing share of the global auto market (in the coming years), the total auto market will continue to grow larger.
That means the number of gas-powered automobiles on the road will continue to increase for several more years. The U.S. Energy Information Administration says the total number of internal combustion vehicles on the world’s roads will not peak until 2038.
Meanwhile, because crude demand from other end users will continue growing past that date, the International Energy Agency (IEA) expects worldwide oil demand to be at least 25% higher in 2050 than it is today.
That’s the IEA’s “reference case” scenario. Under alternative scenarios, the IEA says worldwide crude demand could top a whopping 150 million barrels per day (MBPD) – or about 50% above current levels…
…the death of oil is greatly exaggerated… and I expect its price to deliver some upside surprises over the next year or two.
Keep an eye on oil. There are still profits to be had here.
***In the meantime, consider a sector with less immediate downside risk (because it’s already been bombed out)
Travel.
Obviously, in the wake of Covid-19 lockdowns, the travel industry was destroyed. But now that a genuine global recovery is taking root, related stocks are strengthening, poised for sustained growth.
Eric has been researching this trade for months and is bullish on a handful of related stocks today.
Back to his latest issue of Investment Report:
The chart below, which I featured in last month’s issue, shows that travel activity has been recovering for months, even amidst the successive waves of the pandemic.
U.S. hotel bookings, which have been spearheading the recovery, have risen to just 10% below pre-COVID. Global air travel bookings are lagging farther behind, but steadily recovering, nonetheless.
Recent anecdotal evidence also testifies to a recovering global tourism industry. For example, one of Europe’s largest tour operators announced this week that its holiday bookings for the summer have reached 2019 levels.
Following close on the heels of that announcement, Michael O’Leary, CEO of discount European airline Ryanair Holdings plc (RYAAY), stated that his company has seen a “dramatic recovery” in bookings during the last two weeks.
I expect this new trend to take root and blossom throughout the rest of this year and next.
***So how might you play this?
There are plenty of one-off stocks, like the travel booking site, Expedia (EXPE).
As you can see below, it’s a volatile stock, but it’s up 43% over the last 12 months. By the way, it’s up 16% here in 2022 while the broad market has been weak.
There are also a handful of ETFs that target specific corners of the travel sector.
For example, there’s CRUZ, the Defiance Hotel Airline and Cruise ETF. It holds stocks including Marriott, Hilton, Carnival, Delta, Royal Caribbean, and Southwest Airlines.
For greater concentration on travel booking, there’s the ETFMG Travel Tech ETF, AWAY. Some of its largest holdings include Expedia, Booking Holdings, Travelsky, TripAdvisor, AirBNB, and Sabre.
Alternatively, you could focus exclusively on airlines. The U.S. Global Jets ETF, JETS, includes the major airline carriers, including Delta, United, Southwest, American, Alaska Air, Sun Country, and JetBlue to name a few.
As for Eric, he just added two new plays in his Investment Report portfolio. One of them, he calls the reigning monarch of the North American “staycation.” The other is a leader in travel and hospitality. For more on each as an Investment Report subscriber, click here.
In any case, check out the travel sector today. While the broad market is trying to find its footing, we’re finally seeing real, sustained growth from travel. We expect strong gains to come as 2022 rolls on.
We’ll keep you up to speed here in the Digest.
Have a good evening,
Jeff Remsburg
