We’re officially in in the seasonally strong time of year, as November through April is historically the best six months of the year for the stock market.
Our friends at Bespoke recently pointed out that the S&P 500 has soared a cumulative 958% November through April since 1988, versus a cumulative 196% May through October.
There are a few reasons for this seasonal strength, and the third-quarter earnings announcement season is one of the big ones.
Even though many folks were skeptical heading into the third-quarter earnings season, as many multinational companies were hindered by the strong U.S. dollar and year-over-year comparisons grew tougher, results still came in much better than anticipated.
FactSet reports that 91% of S&P 500 companies have posted results for the latest quarter, with 69% of these companies exceeding analysts’ earnings estimates. The S&P 500 has achieved average earnings growth of 2.2%, and companies have achieved an average 1.8% earnings surprise.
FactSet also reports that Wall Street has rewarded earnings winners handsomely over the past few weeks, with stocks climbing an average 2.4% in the two days leading up to the earnings release and in the two days following the earnings report. That’s much bigger than the typical 0.9% rise.
What this tells me is that earnings are working!
In my opinion, the third-quarter earnings announcement season has served as a spark to ignite what should be a strong finish to the year.
Last week’s better-than-expected inflation report and Tuesday’s favorable Producer Price Index (PPI) report also stoked the market’s flames.
When you consider seasonality, strong quarterly results and moderating inflation, it’s not too surprising that the stock market has started to meander higher.
The S&P 500 and Dow are up 1.8% and 2.5%, respectively, in November so far – and I expect this strength to continue, especially since the holiday season is upon us.
You may recall that the stock market tends to rally into long holiday weekends. Wall Street and Main Street alike look forward to a few days off, and folks are generally in a more positive mood ahead of holiday weekends. It’s the happy time of year after all. So, I anticipate the market will rise ahead of Thanksgiving next week and continue to trek higher through yearend.
Energy Set to Lead the Market Higher
Now, if you want to make real money in the market, it’s all about investing in the new market leaders. And those leaders are likely to be fundamentally superior energy stocks, which is exactly what I am recommending Growth Investor.
As I will explain in Friday’s Growth Investor Monthly Issue for December, even with more promising inflation numbers, the world is in the midst of a potential energy crisis as diesel and heating oil remain in short supply.
Not only did Russia trigger an energy crisis, but the Biden administration did so as well, by curtailing drilling permits on federal land and cancelling the Keystone Pipeline.
Furthermore, OPEC+ is still planning to cut production by 2 million barrels per day, so higher crude oil prices are likely when seasonal demand rises in the spring.
That said, overall, there is less uncertainty now than there was a couple months ago, but the longer you look the fuzzier it gets. As a result, it is imperative that we control our own destiny through superior stock picking.
And my system has been pointing towards energy stocks all year. And it’s paid off…
The average Growth Investor stock is characterized by 66.1% annual sales growth and 505.5% annual earnings growth. The analyst community has revised their consensus earnings estimate up 24.4% in the past three months for my average Growth Investor stock.
Furthermore, in the past 12 months, my average Growth Investor stock dividend has been increased 142.7%.
Yet, my average Growth Investor stock trades at only 7.1 times median forecasted 2023 earnings!
In my opinion, we are still in the early innings of an incredible rally in energy stocks for at least the next couple years. I will go so far to say that 100% appreciation per year is very possible for my average Growth Investor stock due to our big energy bet!
In this month’s issue, I’ll further discuss why I expect energy stocks to emerge as the market leaders. Personally, I’m so bullish on the energy sector that I am adding five new energy stocks to my Growth Investor Buy List on Friday – three of which are oil refiners that will benefit from the national diesel shortage and higher fuel prices in the spring.
I will publish my Growth Investor Monthly Issue for December after the market closes tomorrow.