On March 11th, just 19 days after hitting all-time record highs, the historic 11-year bull market was stopped in its tracks due to the coronavirus, and a new bear market had begun.
It was the fastest we’d ever seen a bull market turn into a bear.
Stocks plunged as traders braced for the worst. The Dow fell as much as -38.4%, the S&P was down by -35.3%, and the Nasdaq was down by -32.5%.
But within 11 short days after the bear market began, stocks surged by more than 20% to exit bear market territory and officially begin a new bull market.
And that was the shortest bear market we’d ever seen.
The Dow was first, followed by the S&P a week and a half later, and then the Nasdaq a few more days after that.
Currently, the Dow is up by 30.5% from its lows, the S&P is up by 29.4%, and the Nasdaq is up by 30.2%.
But it looks like there’s a lot more upside to go.
In a study of the top 10 bear markets (using the Dow), the rallies that followed have been spectacular. Within a year after a bear market, stocks surge on average of 44.7%. And go on to gain on average of 66.3% by year 3.
And following the biggest bear market in that study (10/2007-3/2009 during the housing/financial crisis, aka the Great Recession), the market gained 63.4% in year 1; 100.6% by year 3; 153.6% by year 5; and more than 357% during the entire 11+ year bull market.
And with many analysts calling for an ‘unprecedented’ recovery, the gains are poised to be even bigger this time.
More . . .
Deadline at Hand: Get Finding #1 Stocks Free
Zacks EVP Kevin Matras expects the economy and stock market to soar as pent-up economic demand is unleashed when the coronavirus outbreak subsides. The key is knowing where to find the stocks that will lead the market when it goes back up.
Today, Kevin is making his hardcover book, Finding #1 Stocks, available to you for free. In it, he shares his best stock-picking secrets, including the exact formulas for strategies that, from 2017 through 2019, produced gains of +118.0%, +175.7%, and even +186.7%.
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Then And Now
The difference between previous bear markets, and the one that just ended, is that they are typically preceded by a slowing economy. But this one came about due to an unforeseen exogenous event – the coronavirus.
Prior to the outbreak, the U.S. economy was considered by many to be the strongest of our lifetime with 50-year low unemployment, 20-year high in household income, near record high consumer confidence, and record high corporate profits.
Yet in an effort to slow/stop the spread of the virus; the travel bans (which affected the flow of people and goods), and the extreme social distancing measures (that have temporarily shuttered businesses and kept people at home), brought our economy to a standstill.
But since the worst is now behind us, the economy and stocks are expected to soar as pent-up economic demand is unleashed.
While many states will remain on lockdown for another couple of weeks, some states have already begun reopening. And there’s roughly another 20+ states that will begin reopening their economies by the end of April/first part of May.
And by the end of May, most (if not all) of the country will be open for business.
The reason why analysts are calling for an unprecedented economic recovery is because of the unprecedented aid that has been made available to businesses and workers.
So far, nearly $10 trillion in monetary and fiscal stimulus has gone out to those hardest hit by the virus. That includes the Paycheck Protection Program which is designed to provide low interest loans (or grants), to small businesses so they can keep their staff employed and paid during this downtime.
This has never been done before. But this way, once businesses start to reopen, they can hit the ground running, employees can immediately go back to work, and the process of rebuilding our economy can begin.
Let’s also not forget that the Fed slashed interest rates to near zero. And it doesn’t look like those are going to go up anytime soon. That’s bullish for both businesses and consumers as it keeps more money in people’s pockets, giving them more money to spend.
Given all of the above, that’s why Fed Chair, Jerome Powell, said the economic recovery can be “robust” once the economy reopens, and that the current job losses are just temporary due to the coronavirus.
All sentiments many market watchers share. But it’s always good to hear it from an authority like Mr. Powell.
Riding The Bull
We all knew once the pullback was over that a new bull market was inevitable. History has proven that.
But the speed of this bull market has caught many off guard.
And the gains keep racking up.
But not all stocks are created equal. And there will be distinct winners and losers in the subsequent rallies to come.
Of course, there are the obvious. In the winners column you’ve got online shopping companies, home delivery, telecommuting and videoconferencing software, etc.
In the losers column you’ve got airlines, hotels, brick and mortar retail, and more.
But there are less obvious picks and pans.
Even though the economy is beginning to reopen, that doesn’t mean all businesses will snap back to pre-COVID levels.
Those with the best balance sheets and cash flows will fare the best.
But restaurants, for example, are likely to only return to 75% of their previous levels. And it will likely take the rest of the year to do it. One of the reasons has to do with the level of confidence people will have going into a ‘crowded’ place, even with social distancing. The other being that social distancing will cut into their seating capacity as tables are removed and spread apart.
Companies in the Medical Sector should do well. Especially those focused on coronavirus testing, therapeutics and vaccines. Abbott Labs, for example, just came out with a new test kit that’s expected to add $1 billion in sales. Gilead is currently testing their drug Remdesivir. Although, there have been conflicting reports on its efficacy (a leaked study in Chicago showed promising results, while an early study in China showed the opposite). But there are many other companies racing to develop treatments of their own. And Moderna is working on a possible vaccine, although that likely won’t be ready (assuming they succeed) until next year. But there’s plenty of cost to produce all of the above. And not every new product from every company will succeed.
The oil industry has been hit hard recently as declining demand and overproduction led to a gigantic oversupply. But in all of that carnage, the shipping industry (specifically those that can store crude oil in their tankers) has seen numerous stocks spike up as customers look to these firms to store their oil.
The point is, there will be huge opportunities in many different sectors as this new bull market unfolds.
Some of the breakout stocks will be tried and true names we all know and love.
And others will be stocks you may never have even heard of before.
That’s because this virus outbreak, and the upheavals it’s brought about for businesses and consumers, will change large portions of our economy. And the companies that can adapt will thrive and become new market leaders. While those that can’t will suffer.
And you need to know how to determine which is which.
Do What Works
The best way to find the new market leaders is to stick with time-tested methods that work.
For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 26 of the last 32 years with an average annual return of 24.5% per year? That’s nearly 2.5 x the S&P with an annual win ratio of more than 81%.
That includes 2 bear markets and 3 recessions.
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 achieving your investment goals.
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 you focus on proven, profitable strategies 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.
Here are a few of my favorite strategies that have regularly crushed the market year after year, in both good times and bad.
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 20 years (2000 thru 2019), using a 1-week rebalance, the average annual return has been 47.8% vs. the S&P’s 6.0%, which is nearly 8 x the market.
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 20 years (2000 thru 2019), using a 1-week rebalance, the average annual return has been 54.1%, which is 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 20 years (2000 thru 2019), using a 1-week rebalance, the average annual return has been 54.7%, beating the market by 9.2.x the returns.
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 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 of +118.0%, +175.7%, and even +186.7% from 2017 through 2019.
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 midnight Saturday, April 25, unless we run out of books first. If you’re interested, I encourage you to check this out now.
Find out more about Zacks Home Study Course >>
Thanks and good trading,
Zacks Executive VP Kevin Matras is responsible for all 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.