Many investors are certain the stock market will head much lower... [RiskHedge Report] [Justin Spittler]
The truth no one wants to hear about stocks By Justin Spittler - RiskHedge Iâve been getting under some peopleâs skin. And itâs because Iâve been unapologetically bullish for the last couple months. I get it. No one wants to hear the bull argument after the horrible year we just had in stocks. But as I showed you [three weeks ago](, things have changed. Many investors havenât entertained the possibility that last yearâs bear market is over. Theyâre certain the stock market will head much lower. Their arguments sound something like: âInflation is still too high; the economy is speeding toward a recession; the Fed isnât done raising rates.â I get where theyâre coming from. Thereâs a lot to be concerned about right now. But practically every investor has those same concerns. So, thereâs a possibility the worst has already been priced into the markets. As a trader, I prefer to listen to what the price action of stocks and other assets are telling me... rather than get caught up in various narratives. And the price action Iâm seeing is making me more bullish by the day. Let me explain.. and share six stocks to add to your watchlist. - Today, the ârightâ stocks are leading the market⦠Regular RiskHedge readers are familiar with the concept of ârotation.â Rotation occurs when investors move money from one sector of the stock market to another. Itâs called ârotationâ because money typically rotates from sectors that are hot to sectors that have been lagging. During bear markets, money rotates into âdefensiveâ sectors like utilities, healthcare, and consumer staples. During bull markets, money tends to flow into technology and consumer discretionary stocks. In other words, you can learn a ton about the state of the market by observing which stocks are leading and which stocks are lagging. So far this year, the right stocks have been outperforming. You can see what I mean below. This chart shows the performance of the 11 sectors that make up the S&P 500: The top-performing sectors this year are communication services (XLC), which include stocks Netflix (NFLX) and Meta Platforms (META), and consumer discretionary (XLY), which includes Home Depot (HD) and Nike (NKE). These sectors have rallied 18.6% and 17.5%, respectively. At the beginning of the year, [I predicted communications stocks would be the big winners of 2023](, and that hasnât changed. The worst-performing sectors this year include consumer staples (XLP), healthcare (XLV), and utilities (XLU). As I said, these are defensive sectors. Investors flock to them when theyâre nervous about the stock market or economy. But thatâs not whatâs happening right now. Instead, investors are bidding up consumer discretionary, technology, and beaten-down communications stocks. This is ârisk onâ behavior. Itâs exactly the sort of price action youâd expect to see in a bull market. - Growth stocks have also woken up in a major wayâ¦Â Growth stocks are some of todayâs fastest-growing companies. Many of them arenât profitable yet. Some are years away from turning a profit. This makes them highly sensitive to inflation and higher interest rates. As Iâve explained before, growth stocks peaked in 2021 well before the broad market did. The ARK Innovation ETF (ARKK), which many investors use as a benchmark for growth stocks, started falling in February 2021⦠10 months before the S&P 500. In short, growth stocks âsniffedâ out that inflation and higher interest rates were coming well before the rest of the market did. Now, the opposite is happening. High-quality growth stocks are leading the market higher. Look at Intapp (INTA), a software company. The stock has soared 115% since September: Shift4 Payments (FOUR) is another growth stock thatâs been leading the market higher. Itâs up 86% since November: And hereâs Shopify (SHOP), which is up 112% since October: Many other beaten-down growth stocks are emerging from multi-month consolidation patterns and beginning new uptrends. Here are a few Iâm closely monitoring: - Freshworks (FRSH) - Procore Technologies (PCOR) - Flywire (FLYW) - Riskified (RSKD) - Confluent (CFLT) - Weave Communications (WEAV) I could go on and on. My point is that growth stocks are putting in a sustained surge for the first time in over a year. This speaks volumes about the kind of environment weâre in right now. I stand strong by [my call last month]( that the bear market has ended, and a new bull market has begun. That said, nowâs not the time to get overly aggressive. I recommend adding to your favorite stocks on weakness. A dip would be normal and healthy soon after Januaryâs big runup (more on this in Saturdayâs Roundup). - Before I sign off... [This is your last chance to claim a RiskHedge âAll Accessâ pass](âand receive ALL of our research for less than the regular price of one advisory. Youâll receive every issue... every special report... and every stock and crypto pick we recommend this year. And youâll lock in your spot in my new live âtrading roomâ weâre set to launch in the next one to two months. This will be the best way for me to deliver my top trades to you in real time. All in all, you stand to save up to 74% on an All Access pass. And if youâre already an active premium subscriber, youâll receive full credit for the remainder of your subscription to make that discount even bigger. But timeâs running out. This offer closes at midnight⦠so if you want to capitalize on this, [I suggest making your move now](. [Go here to review all the details](. Justin Spittler
Chief Trader, RiskHedge Suggested Reading... [Markets are about to
hit a brick wall](
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