The world is a mess. And the market is getting pulled down with it. Since the beginning of the year, the S&P 500 is down 19%, while the Dow Jones Industrial Average and NASDAQ Composite are down 14% and 26%, respectively.
While we’ve seen some relief this week, we’ll likely continue to experience volatility through the summer as the Federal Reserve continues to try and rein in inflation.
We’ve been rehashing the same key culprits all year… rising inflation… continuing supply chain issue… the Russia/Ukraine war and its effect on the European Union…
Not to mention the Federal Reserve’s action to quell inflation… the White House’s actions to fix the economy… and the ever-looming recession.
I know that some of you out there are nervous about our profit potential on the market right now, and that’s completely understandable.
But the fact is folks, fundamentally strong companies with growing earnings and growing revenues will prevail, and bounce like fresh tennis balls.
In today’s Market 360, we’re going to look at the market’s trajectory and the best stocks to buy ahead of earnings…
Market’s Bounce Is Likely Soon
The stock market made a new low on June 16 — mainly due to higher interest rates and inflation fears.
However, since then, Treasury bond yields have fallen significantly, and there was a big short-covering rally that often marks a market bottom.
Subsequently, there was a flight to quality and institutional window dressing has helped to boost many of fundamentally superior stocks that are expected to announce strong second-quarter results.
Finally, the annual Russell realignment is over, which boosted the stocks that were added to the Russell 1000 and Russell 2000 indices.
Our friends at Bespoke recently documented that during the past seven times the S&P 500 declined more than 20% for two consecutive quarters, the average gain in the next quarter, next two quarters, and next year was 8.51%, 21.47% and 31.36%, respectively.
Nonetheless, the stock market remains in a poor mood, and the financial media won’t quit their recession talk.
So, it’s somewhat amazing that we are not in an “earnings recession”… and the analyst community remains largely positive. Currently, FactSet expects rises in S&P 500 earnings of 4.1% and revenue of 10.1%.
Frankly, the analyst community is smarter than the macro strategists that keep calling for a recession.
The bottom line is fear sells, so negative news continues to overpower positive analyst comments.
But earnings are working… and the next round starts next week. It’s why I expect stocks that report solid growth to bounce.
Stop Trying to Call a Bottom… and Do This Instead
Look, the reality is, even the best analysts and systems will fail at calling an exact bottom in the market.
The negative sentiment has caused the S&P 500 to have its worst annual start in 50 years. Even so, there is no “earnings recession” because the analyst community continues to revise their earnings estimates higher.
That’s why it’s so important to follow fundamentally strong stocks that are positioned to push higher…
And with earnings season around the corner, the time to load up on these positions is now.
As always at Breakthrough Stocks, we are entering the second-quarter announcement season “locked and loaded” with strong forecasted sales and earnings.
Specifically, the average Breakthrough Stock has 44.8% average annual forecasted sales growth and 96.6% average annual forecasted earnings growth. Further, in the past three months, the analyst community has revised their average consensus earnings estimate 20.8% higher.
So I am expecting another round of earnings surprises in the upcoming weeks.
Some of those surprises should boost the share prices of a number of stocks that both legendary investor Whitney Tilson and I have in our crosshairs.
While our investing strategies are different, Whitney and I both agree that there’s explosive potential in specific small-cap stocks right now… many of which are polishing up their upcoming earnings reports as I write this.
Later this month, as those reports are rolling out, I’ll be sitting down with Whitney for an in-depth conversation on how are investing strategies are different… on where they intersect… and on how you can use that to your profitable advantage.
Whitney’s a smart guy — CNBC dubbed him “The Prophet” for accurately predicting so many market moves — so I hope you’ll join us for that conversation.
Stay tuned… I’ll have more details for you soon.
Meanwhile… tomorrow, in fact… in the Breakthrough Stocks Monthly Issue for July, I’m issuing four exciting new “Buys.” Two of them are in healthcare, a sector that’s recently been on a bit of a tear.
To learn how you can access tomorrow’s issue hot off the presses, click here.
Join me at Breakthrough Stocks today so you can read the issue the moment it comes out.
