Why Market Swings Don’t Scare Me
I know the stock market has been volatile the past few days.
We’ve seen big momentum stocks, the ones that shot up hundreds or thousands of percent in 2020, drop 10% to 30% in a matter of days.
Tesla, our old favorite electric vehicle stock, has plunged as much as 40% from its recent peak.
That’s well beyond what we’d call “correction” territory at this point.
And a lot of investors who believe stocks only go up were in for a rude awakening when all their favorite stocks fell 10% last week.
But it’s no time to panic.
That’s because the ups and downs are perfectly normal for the stock market. In the long term, stocks tend to go up. For weeks, months or even years, it doesn’t mean those same stocks can’t head lower.
For example, look at the S&P 500 over the last 12 months. We experienced a sharp drop from the pandemic, but since then, we have seen multiple pullbacks of 5%, 8% and even 10%. Yet the market has been trending higher — up 42% overall in the past 12 months.
The talking heads on TV love to predict the next big crash. But we get to ignore the noise. We know that this fall is handing us some great opportunities.
Well, if you got caught up in the bear market hype, we have good news for you. You can just look at the latest earnings season. And then, you can find a great sector poised to swing back.
Here are the details…
Last Quarter Was a Testament to the American Economy
Every quarter I follow earnings season closely for my Quick Hit Profits service.
And I knew this quarter would be important.
We were closing out the fourth quarter of 2020 just as some parts of the country were easing lockdown restrictions and opening back up.
It was a true testament to the strength of the U.S. consumer.
Corporations absolutely crushed it.
And it’s why I’m not panicking over the latest volatility.
In fact, I’m pumped about the opportunities it is going to create as the market rebounds and heads higher.
And I don’t say that lightly.
When we step back and look at the bigger picture, the fourth quarter was outstanding:
- 79% of companies reported better-than-expected earnings. (That’s the third-highest percentage since 2008.)
- Earnings growth was 13.3 percentage points better than projected.
- This was the first quarter since 2019 to report earnings growth.
It doesn’t matter what standards you have for a good quarter, that was a good quarter.
And it’s just the start.
America’s economic rebound is only beginning. And it’s spreading around the globe as more states and countries open back up. Analysts expect we’ll be seeing earnings growth every quarter of 2021 as the rebound from the pandemic continues.
That’s going to give the stock market a huge tailwind over the next 12 months.
And it’s why I’m not worried about the recent round of volatility.
Here’s how to take advantage of it…
Jump Into This Rebound Sector
I know it is rough out there right now. Maybe you bought into a stock just before this rapid sell-off. Maybe it is giving you second thoughts about exiting a position that is down 20% from its recent peak.
My advice … don’t.
Don’t sell out of stocks that you liked before the pandemic. (Of course, if something fundamentally changed about the company, then maybe it’s time to cut and run.)
I firmly believe that six to 12 months from now, stocks that are down by 10% or 20% will have swung up 30% or 40%.
One sector set to benefit from a rebound is semiconductor stocks. They are down 15% from their recent peak but are at the core of economic growth and the technological revolution.
Adding a fund like the VanEck Vectors Semiconductor ETF (Nasdaq: SMH) will put you in an excellent position for a bounce higher.
The strength of earnings in the fourth quarter of 2020 makes me bullish.
But what has me really excited is the opportunities a volatile market creates.
And if you want to set yourself up for even bigger potential profits than the market, you need to check out my Quick Hit Profits service. We don’t have to blindly guess about which stock will be seeing the next big move. I wait for my strategy to signal a new trade for me, then if it meets my criteria, I tell my readers to jump in.
It takes a lot of the guesswork out of trading in volatile times. But you don’t have to take my word for it. My colleague Charles Mizrahi and I break down how it works here.
I believe this year is going to be profitable going forward. I hope you get on board!
Chad Shoop, CMT
Editor, Quick Hit Profits
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.