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After a strong start to the year, the indexes have all turned lower. Tariff uncertainty is the main culprit. While the Administration announced its tariff plans last week, there's still plenty of questions left unanswered. That includes what happens if other countries remove their tariffs? Will the 10% minimum tariff still stand or will that be removed so both countries are at zero? How long will these tariffs last? And also, how much of those tariffs will companies pass on to customers? That's probably the biggest question right now. For perspective, it's important to know that imports make up only about 15% of U.S. GDP. Moreover, it's highly unlikely that there will be a commensurate decrease in spending in relation to the tariffs. It's also unlikely that all of the tariffs will result in pass-through price increases. Additionally, there's the substitution effect of people simply switching to domestic products. That would be considered a benefit. Judging by the reaction of the markets, some investors are shooting first and asking questions later. Although, I would contend that the market was ripe for a pullback anyway, after running up too far, too fast at the end of last year and early this year. But I'm here to say it's an opportunity in disguise. Most pullbacks/corrections are. Pullbacks are defined as a decline between -5% and -9.99%, and they happen on average of 3-4 times a year. Corrections are defined as a decline between -10% and -19.99%, and they happen on average of about once a year. And bear markets are defined as a decline of -20% or more, and they happen on average of about once every 5 years. (Although, we've actually had a couple within the last 5 years.) The Dow is down -14.9% from their all-time high close last December (correction). The S&P 500 is down -17.4% from their all-time high close just a month and a haif ago (correction). The Nasdaq is down -22.7% from their all-time high close last December (bear market). The small-cap Russell 2000 is down -25.2% from their high close last November (bear market). And the mid-cap S&P 400 is down -21.9% from their all-time high close from November (bear market). As painful as pullbacks and corrections are, they are very common. Every bull market has them. But if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell. Likewise, bear markets come and go as well. But the moves back up are spectacular. Literally every previous bear market has resulted in a new bull market. And the last two bear markets (2020 due to the pandemic, and 2022 due to high inflation/high interest rates and subsequent banking scare), show just how quickly the gains can add up. Within one year from the bear market low in 2020, the S&P was up 74.9%. From the 2022 bear market low, it was up 22.4% 12 months later, 62.6% 24 months later, and 71.8% less than 2½ years later before peaking on 2/19/25. You should also know that pullbacks, corrections and bear market are often accompanied by great panic and hysteria. And it feels like we're getting to that stage right now (if we aren't already in it). But declines like this help refresh and strengthen the market before the next leg up. And when this one is done (it may be closer than you think after last week), I'm expecting a huge move up. Here are some reasons why 2025 could ultimately shape up to be a historic bull market. March Showers Bring April Flowers Let me first start with March's S&P decline of -5.75%. Did you know that since 1945, in every instance when the S&P was down by -3% or more in March, it was then higher in April? That happened 7 times. And each and every time it was higher in April. The average gain in April was 5.92%. That would be a heck of a move given where we are MTD right now. Additionally, looking at April thru the end of the year, it was higher in 6 out of those 7 years, with an average gain of 20.3%. A move I'm sure no one would want to miss. History Repeats Itself That 20% gain fits perfectly with this next statistic. Last year saw the S&P 500 soar by 23.3%. That was the second year in a row of 20%+ gains. (2023 was up 24.2%.) That's a feat rarely seen in the past. And I believe that bodes well not only for this year, but for several years to come. Although, some see the impressive back-to-back gains as a cautionary tale and tie it to the dot-com bubble. But I see it differently. The dot-com bubble 'burst' in 2000 when the S&P dropped by -10.1% for the year. (That was also Y2K, which caused plenty of panic leading up to it, but came and went pretty much without a hiccup.) The point is, the dot-com bubble was preceded by the dot-com (technology) boom. In 1995 the S&P was up 34.1%. In 1996 it was up 20.3%. That was the first time it was up 20% or more for two years in a row since 1954-55. So, what happened in 1997? It was up another 31.0%. (BTW, 1997 was one of those 7 years I mentioned earlier. In March of '97, the S&P was down -4.26%. But in April it gained 5.84%. And from April to year's end, it gained 28.17%.) 1998? Up another 26.7%. And in 1999, it was up 19.5%. A spectacular rally that lasted 5 long, glorious years. Yes, the dot-com bubble arrived in 2000. But not before people got rich over the preceding 5 years with a 220% increase in the index, while plenty of individual stocks were up several hundred percent to several thousand percent. And I believe we could possibly see the same thing again now. Maybe 5 years or more of boom times – for similar reasons, and some unique to the present day. Tech Booms: Past And Present (AI Tech Boom Is Alive And Well) The tech boom back then saw everybody go nuts for technology stocks, driven by the internet and dot-com companies. It was new and exciting. And the internet was forecast to change the way people shopped, did business, and interacted with each other. The promise was real, as we now know. So, what's the parallel? In part, it's another tech boom. But this modern technology boom is being driven by Artificial Intelligence (AI). And it's forecast to be just as transformative as the personal computer, the internet and the mobile phone. And it's expected to touch virtually every industry in some way shape or form, as well as impact ordinary lives. The AI trade has worked so well for a reason — because the AI boom is real, and is supported by real earnings, and real growth potential. But there are plenty of other catalysts that make the market outlook even more exciting. Continued . . . | ||||
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| Inflation And Interest Rates While progress on inflation had slowed at the end of last year, recent inflation reports show that the path back down to the Fed's 2% target has mostly resumed. Last month's Consumer Price Index (CPI, retail inflation) showed core inflation (ex-food & energy) at 3.1% y/y, down from the previous month's 3.3%. The Producer Price Index (PPI, wholesale inflation) came in at 3.4% y/y, down from the previous month's 3.6%. And while the latest Personal Consumption Expenditures (PCE) index (the Fed's preferred inflation gauge), ticked up to 2.8% y/y from the previous 2.7%, it was not up by much. And the report prior to that was down. Granted, everyone agrees that inflation is still too high, but Fed Chair Jerome Powell, recently said that he believes inflation is on a "sustainable path back to 2%." He also said that he was "feeling good" about the economy and that they've made "significant progress on inflation," while maintaining a "strong, but not overheated" jobs market. While the Fed is not ready to cut interest rates again just yet, citing uncertainty around tariffs, the Fed is still forecasting 2 more rate cuts this year (presumably by 25 basis points each). And that comes on the heels of the 100 basis points they cut last year (all within 4 short months). Plus, when interest rates begin to fall again, you can be sure plenty of money tied up in money markets will find their way back into equities, further supporting stock prices. What's Going On With Q1'25 GDP Estimates? A few weeks ago, the market was suddenly spooked by the Federal Reserve Bank of Atlanta's GDPNow estimate for Q1'25 GDP. Previously pegged at a positive growth rate of 2.3%, it was slashed to -1.5%, and then a few days later it was slashed again to -2.8%. The dramatic downshift from positive to negative caught many off guard. But I should mention that there are seasonal factors that can weigh on Q1's GDP. In fact, Q1 is considered the weakest quarter of the year. We also have the potential skewing of a rush of imports that came in, in an effort to beat the new tariffs. (It should be noted that an increase in imports vs. exports can depress GDP numbers.) That being said, the huge swing from a gain of +2.3% to a decline of -2.8% is worth noting. And shouldn't be summarily dismissed. But there are factors exacerbating this. And investors should keep that in mind. With that, you are going to hear the word recession more and more in the coming weeks and months. But Commerce Secretary Howard Lutnick has said there will "absolutely not" be a recession. What's important to note is that the underlying economy is strong. And that was underscored, once again, just last Friday, by the latest Employment Situation report. It wasn't gangbusters. But it was another better-than-expected 228,000 new jobs. That's not recessionary. On the contrary, that's indicative of growth. And it echoes Mr. Powell's sentiments, as mentioned earlier, of a "strong, but not overheated" labor market. The Earnings Outlook Is For Growth Ironically, while everyone frets over tariffs and the drop in Q1 GDP estimates, the earnings picture looks excellent. Q1'25 S&P earnings are forecast to show a 5.9% increase. Q2 is forecast at 10.1%. Q3 is forecast at a whopping 16.8%. And Q4 is forecast at 11.2%. So, while recession fears have suddenly become a concern, none of that is showing up in the aggregate earnings estimates. And earnings are the key driver of stock prices. Then couple that with the recent fall in stock prices, and the valuations now look like bargains. Stock Picking Secrets Of The Pros So how do you fully take advantage of the market right now? By implementing tried and true methods that work to find the best stocks. For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 29 of the last 37 years (a 78% win ratio), with an average annual return of more than 24% per year? That's more than 2 x the S&P, including 4 bear markets and 4 recessions. And consistently beating the market year after year can add up to a lot more than just two times the returns. It also killed in 1995 with a 52.6% gain; 1996 with 40.9%; 1997 with 43.9%; 1998 with 19.5%; and 1999 with 45.9%. It was also up in 2000 by 14.3% while the S&P was down. Did you also know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true! Those two things will give any investor a huge probability of success and put you well on your way to beating the market. But you're not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once. So, the next step is to get that list down to a smaller, actionable list of stocks that you can buy. And one of the best ways to do that is to see what stocks the pros, who use these methods, are picking. Whether you're a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains. This applies to large-caps and small-caps, biotech and high-tech, ETFs, stocks under $10, stocks about to surprise, even options, and everything in between. Regardless of which one fits your personal style of trade, just be sure you're following proven profitable methods and strategies that work, from experts who have demonstrated their ability to beat the market. The best part about these strategies and stock picks (aside from the returns), is that all of the hard work is done for you. There's no guesswork involved. Just follow the experts and start confidently getting into better stocks on your very next trade. The Pros' Best Picks for Today Here's an easy way to find them: Download our just-released Ultimate Four Special Report. These are 4 stocks handpicked by our experts. Each has strong fundamentals and exceptional growth potential. They're ideally suited to soar through Q2 and far beyond. Stock #1: A cutting-edge biopharmaceutical firm Stock #2: A little-known energy company fueling the AI boom Stock #3: An established player gobbling up market share in an in-demand sector Stock #4: A mining company cashing in on record-high commodity prices The total cost is only $1, and there's no obligation to spend a cent more. Plus, that same dollar gives you full 30-day access to Zacks Ultimate. This includes the real-time buy and sell recommendations, along with expert market insights from all of Zacks' private portfolio services. While future success isn't guaranteed, Zacks Ultimate members recently had opportunities to close gains of +627.5%, +812.0%, +1,096.8% and even +1,340.0%.¹ Don't wait. The deadline to download the Ultimate Four report and start your 30-day access to Zacks Ultimate — both for just $1 — is midnight Sunday, April 6. See Our Ultimate Four stocks now » All the best,
Kevin Matras serves as Executive Vice President of Zacks.com and is responsible for all of its leading products for individual investors. He invites you to download Zacks' just-released Ultimate Four Special Report before this weekend's deadline. | ||||
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| ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or U.S. investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through March 3, 2025. The performance is the equal weighted performance of a hypothetical portfolio consisting of stocks with a Zacks Rank of #1 that was rebalanced monthly from January 1988 through December 2013 and weekly from 12/31/13 through Monday's open on March 3, 2025. For each stock with a Zacks Rank #1 at the beginning of the month, the total return during the month was calculated as the % change in the price of the stock from the closing price of the prior month to the closing price of the current month plus any dividends received during the month. The monthly individual stock returns were then averaged to determine the portfolio return for the month. For each stock with a Zacks Rank #1 at the beginning of the week, the total return during the week was calculated as the % change in the price of the stock from the opening price for the week to the opening price of the next week plus any dividends received during the week. The weekly individual stock returns were then averaged to determine the portfolio return for the week. If no month-end price or week end open price was available for a stock, it was not included in the portfolio return for the month or the week. The monthly and weekly returns were compounded to arrive at the annual returns. The annualized return is the annual return that, had it been achieved in each year or portion of a year, would have compounded to create the total return over the full time period. These returns are based on the list of Zacks Rank #1 Stocks that was available to clients of Zacks as of the beginning of the month, when returns were calculated monthly, or as of the beginning of the week when returns were calculated weekly. These returns are higher than the returns an investor could achieve investing real money in a portfolio of Zacks Rank #1 stocks because the returns of the hypothetical Zacks Rank #1 portfolio exclude a number of costs, including commissions incurred for trading, the average bid ask spread, the price impact of the trading and, prior to 2013, in those months when the end of the month fell on Friday, Saturday or Sunday, the overnight return from the month end close to the open on the next trading day. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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