The last week of stock market volatility pretty much was the summation of several negative influences converging on the investing landscape all at once.
The obstacles include fever-pitch tension between Russia and Ukraine, hot inflation and retail data prompting rising fear of even more aggressive Fed action than has already been priced in, dictatorship-like action by Canadian Prime Minister Trudeau on protesting truckers and high-profile earnings misses by former Wall Street darlings. Further risk stems from the ongoing buy-and-sell program manipulation by high-frequency trading firms that completely roil the market trying to stabilize.
Even an hour-long interview with ARK Funds CEO Cathie Wood couldn’t save her flagship ARKK Innovation ETF (ARKK) from sliding to a new low, down 58% from its 52-week high. Her holdings in Roblox Inc. (RBLX) and Palantir Inc. (PLTR) are the latest earnings disaster de jour stocks to blow up after missing estimates. This market has zero patience for high price-to-sales stocks that fail to beat big and guide strongly higher.
A Historic Opportunity to Buy the Best Stocks: Blue Chips Are Included
With all the high-profile headlines crossing the tape and jarring investor confidence, it’s my firm view that this correction is on the verge of having exhausted itself now that the greatest of blue-chip stocks have been sold off. In most corrections, the soldiers get shot first (small caps), then the sergeants and lieutenants (mid-caps) and then the colonels and generals (large caps).
The market is at a stage where the five-star generals are now at levels that wouldn’t exist under any other circumstances. When the market’s top brass gets taken out, that’s a time-tested indicator that the worst of the selling is about to cease, leading to a bottoming process, followed by a new leg higher. And here’s why:
- S&P 500 earnings for Q1 came in above consensus estimates.
- Omicron is ending in the United States, and consumer spending will accelerate.
- Supply chain disruptions will show evidence of easing in the next six months.
- Bond yields will very likely price in the future of Fed tightening by the end of April.
The outlier is inflation for sure. Wage inflation is here to stay following across-the-board increases in hourly pay and the cost of skilled new hires in most every industry. Commodity inflation can fester longer as global demand increases, even though the supply chains are running more smoothly. But the market can handle modest inflation because sales earnings growth is expanding.
A Historic Opportunity to Buy the Best Stocks: Dominant Mega Caps
Hence, investing in those mega-cap stocks of companies that dominate their space, growing sales at 10-15% or higher and throwing off earnings gains of 10-20% or higher with reasonable price-to-earnings (P/E) ratios are, in my opinion, where investors should be rebalancing their portfolios aggressively while they can, with the generals selling at steep discounts to their historic highs.
This is no time to be clever and complacent. It’s a time to reposition into the very best world-class stocks available.
A Historic Opportunity to Buy the Best Stocks: GOOG, MSFT, MA, BX and HD
Here is just a short list of those to buy:
Alphabet Inc. Cl C (GOOG) – $3,042 High – Currently $2,609
Microsoft Corp. (MSFT) – $349 High – Currently $288
MasterCard Inc. (MA) – $402 High – Currently $370
Blackstone Inc. (BX) – $150 High – Currently $124
Home Depot Inc. (HD) – $420 High – Currently $347
These five stocks come to mind right off the bat, but there are many others in the class of excellence that deserve the full attention of investors when the next bull cycle gets underway. It is a good time for those who want long-term stability of principal, steady dividend growth and low blood pressure readings to consider throwing out some low-quality losers and upgrade portfolios to reflect what is very likely to be a much more narrow market going forward.
My analysis is “not a sermon, just a thought.”