There have been plenty of positive and negative developments distracting Wall Street recently.
As a result, stocks have experienced wild swings both up and down.
Case in point: Just this morning the Commerce Department released growth domestic product (GDP) numbers for fourth quarter 2022. The data showed the U.S. economy grew faster than expected in the final three months of the year. U.S. GDP grew at an annualized rate of 2.9% in the fourth quarter – better than the 2.6% forecasted by economists.
As a result, markets are trading slightly higher this morning as I write.
I’ve discussed the market’s gyrations and many of the big distractions in my Growth Investor Special Market Podcasts. But given the recent wild swings, I’d like to briefly review a few of the biggest recent headlines in today’s Market 360, too. I’ll also share the best way to invest in a distracted market environment.
Ignore the Noise
World Economic Forum: The global elite gathered in Davos, Switzerland, last week for the annual debate about ESG investment policies and worldwide fossil fuel usage. The forum was particularly interesting this year, as the definition of ESG continues to be redefined with both the NASDAQ 100 and S&P 500 adding energy companies.
The World Economic Forum also debated global trade, which was probably a heated discussion with many companies starting to return to more domestic suppliers due to global supply chain glitches. Now, local sources may be more expensive, but due to safety and security concerns, supply chains are now less global than a couple years ago.
Beige Book Survey: Ahead of next week’s Federal Open Market Committee (FOMC) meeting Wednesday, the Fed released its Beige Book survey last week. Six of the 12 Fed districts reported no change or a slight decline in economic activity. Five Fed districts revealed slight to modest growth, and one district reported a significant decline in economic activity.
Interestingly, the Beige Book survey stated that most Fed districts benefited from a slight increase in consumer spending during the holidays. That doesn’t exactly add up with the dismal retail sales report for November and December.
That is one of the big problems with the data that the Fed receives – it’s clearly a bit behind the latest economic data.
Record Crude Oil Demand: The International Energy Agency (IEA) expects record worldwide crude oil demand this year, due in part to China reopening its economy for international travel. The IEA expects crude oil demand to rise 1.9 million barrels a day and reach a record 101.7 million barrels a day. This increased forecast comes on the heels of OPEC and its allies (including Russia) boosting their output by 4.7 million barrels a day in 2022 – and then abruptly cutting production in October.
New global crude oil production is forecast to rise by one million barrels per day, thanks to increased output from Brazil, Canada, Guyana, Norway and the U.S. As a result, the IEA expects very tight crude oil supplies and higher crude oil prices in 2023.
Here in the U.S., crude oil inventories rose 8.4 million barrels in the second week of January, following up a 19-million-barrel increase in the first week of January. So, the U.S. is flush with crude oil. I should add that gasoline inventories rose 3.5 million barrels in the second week of January, while distillate inventories (diesel, jet fuel, heating oil, etc.) declined 1.9 million barrels in the same week. So, the U.S. diesel shortage persists. A European Union embargo on Russian diesel will also start in February, which means diesel prices will continue to rise due to tight supplies.
The fact is there’s been a lot happening around the world, and I know it’s easy to get caught up in the headlines and the market’s day-to-day gyrations. I encourage you to block out a lot of the noise and stay focused on the facts: We’re in the midst of the fourth-quarter earnings announcement season, and I fully expect fundamentally superior stocks to break out and lead the market higher in the upcoming weeks.
Survive Earnings Volatility
The fourth quarter is expected to be the earnings trough for the S&P 500. Outside of energy and agriculture-related companies, it is pretty slim pickings out there for most investors.
I remain very confident in my big energy bet in Growth Investor – especially considering the IEA forecast for record crude oil demand this year. (I’ll talk more about the IEA forecast in tomorrow’s Growth Investor Monthly Issue for February, so become a Growth Investor subscriber today so you can read all the details.)
My Growth Investor stocks are outpacing the S&P 500 by over 2-to-1 so far this year as the crème de la crème rises to the top. Already we have had some companies preannounce their fourth-quarter results, but I still expect lots of fireworks when the actual quarterly sales and earnings are announced.
In fact, just today, one of my Growth Investor stocks, Nucor Corporation (NYSE:NUE), surged more than 5% following its earnings report. The company achieved record full-year earnings of $7.61 billion, or $28.79 per share, which was up 11.4% from $6.83 billion, or $23.16 per share, in 2021. Analysts expected earnings of $28.35 per share. 2022 was also Nucor’s most profitable year in history.
Now, my average Growth Investor stock is characterized by 65.5% annual sales growth and 217.7% annual earnings growth. In the past three months, the analyst community has revised their consensus earnings estimates up by an average of 24.8%, so I am expecting wave-after-wave of positive quarterly announcements as well as positive future guidance.
So essentially, your best defense remains a strong offense of fundamentally superior stocks. Outside of energy and agriculture related companies, the other S&P 500 sectors are forecasted to post deteriorating earnings.
On Friday, I will be releasing three exciting new buys in my Growth Investor Monthly Issue for February, as well as my latest Top Stocks lists.
If you become a member now, you’ll receive the new buys as soon as the Monthly Issue is available tomorrow.
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:
Nucor Corporation (NUE)