The Market’s Only Constant: Volatility

The Market’s Only Constant: Volatility

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We advised readers not to be surprised to see the peaks and valleys we’re witnessing in the market right now, after last week’s S&P 500 dip below support. The market continues to teeter on full-fledged bear market status, and earnings reports this week didn’t help much in pulling it from the edge.

This week, we saw a bounce after nearly entering bear-market territory, but is this just a “dead-cat bounce” or desperate dip buyers getting overly optimistic?

Pardon the morbid name, but a “dead-cat bounce” is a scenario where we see stocks temporarily rebound from a prolonged and steep decline. Basically, anything would bounce if dropped from a high enough vantage… including a dead cat. These bounces are usually short lived, so we advise staying the course with your portfolio, and we’re continuing to focus on income reduction and keeping risk low.

In Monday night’s livestream, we examined how both bullish and bearish scenarios could play out this week. The only constant we see right now is volatility. Case in point: retail stocks…

The Retail Stock Roller Coaster

We usually expect stalwarts like Walmart (NYSE:WMT) and Target (NYSE:TGT) to meet, if not exceed, earnings expectations. But the two retail giants shook the market with dismal earnings reports this week.

While both companies have remained profitable in the first quarter of 2022, they both took remarkable hits — Target reported a 48% decline in earnings compared with Q1 2021, and Walmart’s earnings were down 25% from the same period. Kohl’s (NYSE:KSS) also reported a major miss.

Shares of Target took a 25% hit, as the company blamed the high costs of transportation, wages, and inventory storage. Both behemoths blamed an increase in inventory – Walmart’s was up 32% from a year earlier, and it cited the fact that customers are switching to lower-priced generic and store brands. It’s no wonder, given inflation, that consumers are opting for Great Value instead of Campbell’s, for example. Not for nothing, retailers enjoyed a boost at this time last year, particularly in online business, as the COVID-19 pandemic saw an increase in buying online from discount retailers.

Home improvement stores, however, have reaped the spoils of a vigorous housing market and the desire for consumers to upgrade to more energy-efficient appliances and lawn equipment. Lowe’s (NYSE:LOW) missed its earnings expectations, blaming unseasonable weather but predicting a rally as weather gets warmer. The Home Depot (NYSE:HD), however, surged due to its different clientele mix, which includes professional contractors, plumbers, and electricians.

How Far Can the Market Drop?

The most common question we keep getting this week is whether or not this is the bottom.

The problem with answering this question is that when predicting downsides, there is a high error rate. It’s the nature of the business; there’s no perfect way to predict where an asset will absolutely go in the future.

While stocks haven’t crashed yet (and we don’t think they will for a while), there could still be some serious losses still to come. And regardless of the potential large error rates, we do still try to make these predictions. During last night’s livestream, we go over the downside target for the S&P 500 if conditions get worse… and what you as investors can do about it.

A Little Reassurance

We understand that navigating the market in times like these is difficult and stressful, so please make sure to read the special report we sent last week from InvestorPlace CEO Brian Hunt.

Specifically, we’d like to point out one passage…

Don’t panic over a market correction and don’t let the fear-stoking headline of the hour scare you out of your holdings of high-quality innovative companies that are poised to change the world. During stock market corrections, I ask you to focus on what really matters: progress, transformational industry trends, creating value for others, and innovation.

Check out his special report on what to do when the stock market drops here.

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