Editor’s Note: The InvestorPlace offices and customer service department will be closed on Monday, January 2, for New Year’s Day. The stock market will also be closed on Monday. Your next Market 360 article will be available on Tuesday, January 3. We hope you enjoy the long holiday weekend!
Here we are folks, just a few short days from closing the books on 2022. This year certainly wasn’t without its highs and lows. In today’s Market 360, let’s reflect on 2022 and I’ll share the 10 stocks you should consider ringing in the New Year with.
Stocks started strong out of the gate in 2022, with the Dow and S&P 500 quickly rising to new record highs. But less than a week into the New Year, the market reversed course and a nasty selloff began. The S&P 500 declined 5.2% in January – the index’s weakest monthly performance since the pandemic in March 2020.
Of course, it wasn’t just the S&P 500 that came under pressure. The Dow slipped into correction territory in early March. The NASDAQ took it one step further; it fell more than 20% from its record high set in November 2021 and officially entered a bear market.
There were four main catalysts that drove the broader market lower in the first quarter: a massive rotation out of growth stocks, surging inflation, the Russia-Ukraine war and the Federal Reserve. Investors were uneasy about how higher key interest rates would impact stocks.
The S&P 500, Dow and NASDAQ ended the first quarter down about 5%, 4% and 9%, respectively.
Moving ahead to the second quarter of 2022, the S&P 500 dropped more than 16%. This marks its worst two-quarter start to a year since 1970. And the list of this quarter’s misfortunes continued as the Omicron COVID variant sent cases spiking (and stocks falling) again and the tech-heavy NASDAQ fell further into a bear market.
Inflation was still running hot in the U.S. and investors were also starting to fear that the Federal Reserve would be too aggressive with its key interest rate hikes, which would eventually tip the U.S. economy into a recession.
The S&P 500, Dow and NASDAQ finished the second quarter deeply in the red, down about 16%, 11% and 22%, respectively.
The third quarter was another tough one for the stock market, with the S&P 500 delivering its worst monthly performance in September, down 9.2%. This also marked the S&P 500’s third-straight quarterly loss, as well as its worst September loss since 2002.
But there was a highlight in the quarter: earnings season.
Energy stocks were the real winners, with a 137.3% average earnings growth rate and 47.1% average sales growth rate. Without energy, the S&P 500 would have reported a 5.3% drop in earnings growth.
All told for the third quarter, the S&P 500, Dow and NASDAQ fell about 6%, 8% and 5%, respectively.
This brings us to the current quarter. October was a stunning month for the stock market, with the S&P 500 jumping 8% and the Dow soaring 14%. The NASDAQ rose nearly 4%. Inflation also cooled, with both Consumer Price Index (CPI) and Producer Price Index (PPI) reports coming in lower than economists had anticipated. The slowdown in inflation had investors optimistic that the Federal Reserve would dial back on its aggressive key interest rate hikes in December.
However, stocks pulled back sharply this month in the wake of a surprisingly hawkish Federal Open Market Committee (FOMC) statement in early December. The language was not dovish, and the Fed’s dot-plot survey showed that the Fed plans to raise key interest rates up to 5.1% in 2023, which was above its previous goal of 4.6% in September.
The bottom line: This was a brutal year for the stock market, one that investors (myself included) are happy to put in the rearview mirror.
However, I don’t expect next year to be a repeat of 2022, which is why I encourage staying invested in the stock market. Of course, you don’t want to invest in just any stock, you want your portfolio to be chock-full of fundamentally superior stocks that are also experiencing persistent institutional buying pressure.
If you want to ring in the New Year with a strong portfolio, consider these 10 AA-rated stocks below. Each stock earns an A-rating in Portfolio Grader and Dividend Grader and are a great blend of income and growth.
|Ticker||Company Name||Dividend Grader Rating||Portfolio Grader Rating|
|ARLP||Alliance Resource Partners, L.P.||A||A|
|BSM||Black Stone Minerals LP||A||A|
|CALM||Cal-Maine Foods, Inc.||A||A|
|CHK||Chesapeake Energy Corp.||A||A|
|CMC||Commercial Metals Group||A||A|
|DINO||HF Sinclair Corporation||A||A|
|DVN||Devon Energy Corporation||A||A|
|EOG||EOG Resources, Inc.||A||A|
For more stocks that boast strong fundamentals and earnings growth, I encourage you to give my Growth Investor service a look. It features two Buy Lists: High-Growth Investments and Elite Dividend Payers.
I also include a list of Top Stocks, which is a select list of stocks from my Buy Lists that are experiencing persistent institutional buying pressure and also have superior fundamentals. I consider these stocks the best bets for new money after my newest recommendations. In a market that is growing more narrow, and will likely stay narrow for some time, companies with strong fundamentals should become the market’s big winners next year.
I hope you have a happy and safe New Year! I’ll be back in touch next Tuesday.
P.S. I’m making a big bet on one sector of the market that has already begun soaring in value… and will almost certainly continue to boast record quarterly results for the foreseeable future. Stay tuned for more details after the holidays to learn about the sector I’m going “all in” on.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Archer-Daniels-Midland Company (ADM), Alliance Resource Partners, L.P. (ARLP), Black Stone Minerals LP (BSM), Cal-Maine Foods, Inc. (CALM), Commercial Metals Group (CMC), HF Sinclair Corporation (DINO), Devon Energy Corporation (DVN), EOG Resources, Inc. (EOG), Frontline Ltd. (FRO)