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What a difference a few weeks can make. On April 2nd, the White House unveiled their widely anticipated tariff plan. The reciprocal tariffs were larger-than-expected and the market sank fast. On April 7th, stocks put in their correction lows as tariff fears hit their peak. At their worst, the Dow was down -13.9% for the year, with the S&P down -17.8% and the Nasdaq down -23.4%. Then, two days later, on April 9th, it was announced there would be a 90-day pause on the reciprocal tariffs for most countries (sans China), while bilateral talks with each country took place. Stocks soared on the news with the S&P making their largest one-day advance (+9.52%), in more than 15 years, and soon stringing together their longest winning streak (9 up days in a row), in two decades. Since then, the major indexes have all surged by double-digits from their 4/7 lows, with the Dow up by 16.5%, the S&P up by 23.2%, and the Nasdaq up by 29.9%. And not only are all of the indexes trading higher than where they were before the tariffs were originally announced, the S&P and Dow are actually back in the plus column for the year, with the Nasdaq less than 1% away from doing the same. Wow! The tariff news has now shifted from panic to optimism. The U.S. and the U.K. were the first to sign a trade deal, which removed auto, steel and aluminum tariffs on the U.K., and gave the U.S. greater access to U.K. markets. The 10% base tariffs on the U.K. will remain, as will many of the tariffs the U.K. had on the U.S. previously. But the onerous reciprocal tariffs have been removed and the market cheered the news. And just last week, an agreement was announced on trade talks between the U.S. and China. There would be a 90-day pause on the escalated reciprocal tariffs that each country imposed on the other, with the U.S. bringing their tariffs on China down from 145% to just 30%, while China will bring theirs down from 125% to 10%. Both countries hailed the agreement as a success. And Treasury Secretary Scott Bessent said he expects to be talking with China again in the coming weeks as the two countries look to hash out more details on the historic agreement. Not surprisingly, the market rallied on the news. And there should be plenty more deals announced in the coming weeks. Opportunity In Disguise Even though the selloff was blamed on tariff fears, I contend 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. Regardless, it was clearly 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.) 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 markets are often accompanied by great panic and hysteria. And we definitely saw plenty of tariff-induced panic and hysteria. But declines like that help refresh and strengthen the market before the next leg up. And I believe we are on the cusp of a new, huge move up. Here are some reasons why 2025 could ultimately shape up to be a historic bull market. I Told You So I don't want to say I told you so. But I kind of did. After the pullback in March (it was down -5.75%), and when the market hit the skids in early April, I was writing articles on what the probability was that we could actually see the market finish higher in April. And one of the things I pointed to was an amazing statistic. In short, it showed 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 at that point. 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 the S&P was down as much as -13.8% at its worst in mid-April. We didn't quite get into the plus column by April's end. But it sure came close, ending the month with only a -0.91% loss. For those who bought early, you were essentially back to even. For those who bought near the lows, you likely saw big gains. While that March/April stat no longer has a 100% success rate, 7 out of 8 times is still a pretty amazing statistic. But there's more. 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. And a move I'm expecting to see this time around too. 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 week's Consumer Price Index (CPI, retail inflation) showed core inflation (ex-food & energy) at 2.8% y/y, in line with last month, and down from the previous month's 3.1%. The Producer Price Index (PPI, wholesale inflation) came in at 3.1% y/y, down from last month's 3.3%, and the previous month's 3.4%. And the latest Personal Consumption Expenditures (PCE) index (the Fed's preferred inflation gauge), came in at 2.6% vs. last month's 3.0%. While everyone agrees that inflation is still too high, Fed Chair Jerome Powell has acknowledged the "significant progress" that's been made on inflation, while maintaining a "strong, but not overheated" jobs market. Even though 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. The Earnings Outlook Is For Growth Let's also not forget that earnings drive stock prices. Ironically, while everyone was fretting over tariffs, the earnings picture never wavered and continues to point to growth. With Q1'25 earnings season nearly over, it's looking like S&P earnings for the quarter are pacing at a 12.2% increase. Q2 is forecast at 5.9%. Q3 is forecast at 5.1%. And Q4 is forecast at 6.3%. So, while tariff fears and even recession fears shook the market, none of that is showing up in the aggregate earnings estimates. And again, earnings are the key driver of stock prices. Do What Works 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 the best 5-10 stocks that you can buy. Proven Profitable Strategies Picking the best stocks is a lot easier when there's a proven, profitable method to do it. And by concentrating on what has proven to work in the past, you'll have a better idea as to what your probability of success will be now and in the future. Of course, this won't preclude you from ever having another losing trade. But if your stock picking strategy picks winners more often than losers, you can feel confident that your next trade will have a high probability of success. Here are a few of my favorite strategies that have regularly crushed the market year after year. New Highs: Studies have shown that stocks making new highs have a tendency of making even higher highs. And this strategy proves it. The alignment of positive price action and strong fundamentals creates all the necessary conditions to see these stocks soar to even greater heights. Over the last 25 years (2000 through 2024), using a 1-week rebalance, the average annual return has been 37.6% vs. the S&P's 7.7%, which is 4.9 x the market. Small-Cap Growth: Small-caps have historically outperformed the market time and time again. Often these are newer companies in the early part of their growth cycle, which is when they grow the fastest. This strategy combines the aggressive growth of small-caps with our special blend of growth and valuation metrics for explosive returns. Over the last 25 years (2000 through 2024), using a 1-week rebalance, the average annual return has been 44.3%, beating the market by 5.8 x the returns. Filtered Zacks Rank 5: This strategy leverages the Zacks Rank #1 Strong Buys, and adds two time-tested filters to narrow the list of stocks down to five high probability picks each week. Over the last 25 years (2000 through 2024), using a 1-week rebalance, the average annual return has been 48.4%, which is 6.3 x the market. The best part about these strategies (aside from the returns) is that all of the testing and hard work has already been done. There's no guesswork involved. Just point and click and start getting into better stocks on your very next trade. Where To Start There's a simple way to add a big performance advantage for your stock-picking success. It's called the Zacks Method for Trading: Home Study Course. With this fun, interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don't have to attend a single class or seminar. Zacks Method for Trading covers the investment ideas I just shared and guides you to better trading step by step, plus so much more. You'll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed. You'll get the formulas behind our top-performing strategies suited for a variety of different trading styles. The best of these strategies produced gains up to +307.1% in 2024 while the S&P 500 gained +27.4%.¹ The course will also help you create and test your own stock-picking strategies. Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every trading secret I've learned over the last 25 years to beat the market. Please note: Copies of the book are limited and your opportunity to get one free ends Saturday, May 17, unless we run out of books first. If you're interested, I encourage you to check this out now. Find out more about Zacks Method for Trading: Home Study Course » Thanks and good trading,
Zacks Executive VP Kevin Matras is responsible for all of our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course. | ||||
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| ¹ The individual strategies mentioned herein represent only a portion of the ones covered in the course. 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 April 7, 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 April 7, 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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