It was an absolute bloodbath on Wall Street on Monday. At one point during market hours, every single S&P 500 stock slipped lower. By the close, the S&P 500, Dow Jones Industrial Average and NASDAQ Composite were down 3.9%, 2.8% and 4.7%, respectively, and the S&P 500 officially fell into a bear market. I should also add that out of the 505 stocks in the S&P 500 index, only four were positive for the day…
The brutal selloff was due in large part to investors’ concerns over rising inflation, big interest rate hikes, the threat of recession and poor consumer sentiment.
As we learned last week, consumer inflation is back at 40-year highs. Following this morning’s release of the May Producer Price Index (PPI) report, we know that wholesale inflation isn’t faring much better. PPI accelerated 10.8% in the past 12 months and rose 0.8% in the past month. This was in line with economists’ projections. The core PPI, which excludes energy and trade, accelerated 8.3% in the past 12 months. For May, core PPI climbed 0.5%, which was slightly below estimates for a 0.6% increase but still above the 0.4% reading in April. Higher food and energy costs were the biggest factors behind the increase.
The bottom line is that while wholesale inflation is below the peak levels in March — 11.5% PPI and 7.1% core PPI — it remains near record highs.
High inflation plays into fears that the Federal Reserve will need to raise key interest rates even higher at its June Fed meeting to catch up to market rates and curb inflation. Specifically, some analysts believe the Fed will up key interest rates tomorrow by 0.75%, rather than 0.50%. Personally, I expect the Fed will stick with a 0.50% key interest rate hike, but we’ll know more on Wednesday after the Federal Open Market Committee (FOMC) statement for June is released at 2 p.m. Eastern time.
But given the accelerating inflation, it’s no surprise that the University of Michigan’s consumer sentiment plunged to a record-low of 50.2 in June. That’s down from May’s reading of 58.4. The report also pointed out that the current conditions gauge slipped to 55.4 in June, down from 63.3 in May. A record-low reading in consumer sentiment does not bode well for consumer spending.
Despite these issues weighing on Wall Street, there are still plenty of strong stocks in the market. Case in point: Over the weekend, I took a close look at the latest data on institutional buying pressure and each company’s fundamental health and decided to revise my Portfolio Grader recommendations for 62 big blue chip stocks. Out of these stocks, 28 were upgraded from a C-rating (Hold) to a B-rating (Buy). I should also add that only eight stocks were downgraded from a C-rating to a D-rating (Sell).
I’ve laid out the first 10 stocks that were upgraded to “Buys” in the chart below, but you can view the full list of 62 stocks — including the companies’ Fundamental Grade and Quantitative Grade — by clicking here.
|Upgraded: From Hold to Buy|
|BF-A||Brown-Forman Corporation Class A||B|
|CME||CME Group Inc. Class A||B|
|CPB||Campbell Soup Company||B|
|HBAN||Huntington Bancshares Incorporated||B|
|IR||Ingersoll Rand Inc.||B|
|JD||JD.com Inc. Sponsored ADR Class A||B|
|KDP||Keurig Dr Pepper Inc.||B|
Personally, I believe the best buying opportunities are in the energy sector. The reality is energy prices are still soaring, as evidenced by the latest Consumer Price Index (CPI) and PPI reading for May. Couple this with sky-high oil prices (as of this writing, crude oil sits at $120 per barrel) and record-high gas prices, and that bodes well for the energy sector.
So, in the current environment, now is the time to buy fundamentally superior oil companies that are leveraged to the price of oil. Because oil companies are leveraged, they can see even bigger gains from just a small change in the price of oil. In other words, a 10% move in oil could cause a 100% gain in an oil stock.
However, you need to invest in the right ones. Luckily, I’ve found five energy stocks that are great buys right now. If you’re interested in the names, sign up for Growth Investor today. Once you do, I’ll send you my brand-new special report 5 Stocks for the New Oil Age, which details the five best energy plays. You’ll also receive four other special reports — 3 Income Opportunities for the New American Age, The Best Gold Play for the New American Age and 10 Stocks to Sell in the New American Age.
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