Opinion: 6 Reasons This Is A New Multi-Year Bull Market And 6 Surprising Sector Shares You Should Go For


Nothing like a little October turbulence to help weak hands in the market get in touch with their inner bears.

But don’t let their negativity rub off on you. We are still near the start of what will be a multi-year bull market. Here are six reasons to buy stocks now and six names to consider in one of the best sectors to own right now.

1. The sentiment has become sufficiently bearish

I regularly monitor investor sentiment in my stock letter (details and link in bio below) to make “calls” against the tide in the market. While most of your money should be in long-term holdings, the timing of entries when most people are bearish gives you an advantage. It is now. Sentiment isn’t overwhelmingly negative, but it has dropped enough this week to trigger a buy signal in my system.

It’s also worth pointing out that the mainstream media turned pretty negative this week, another good contrarian signal. (I won’t name names.) And just because their negativity is a bullish signal in my book doesn’t mean I think they’re dense. It’s just that top media commentators are consensus sponges. This is a professional risk – which we can use to our advantage as investors.

Pick your favorite popular financial media talking heads, then do the opposite whenever they consistently turn negative – or positive.

2. Seasonality is in our favor

The worst month for stocks is October, and the weakest days are October 10 and 11. Then this dark month is followed by the seasonally strong phase from January to May, when the market is supported by the influx of new money. Between the two, November and December can be strong as stocks rebound from October weakness and the end of the mutual fund tax loss selling season. It’s over at the end of October.

3. COVID is rolling

It’s no secret that the number of cases and hospitalizations are dropping sharply. The cold last year did not usher in a winter COVID flu season. So, it’s not too crazy to expect the same this year, especially considering all the people who have been vaccinated or infected. The reopening will help stimulate the economy.

4. A correction may have already taken place

Since the summer, the market has seen sliding corrections in various sectors. The Russell 2000 RUT,
+ 0.02%
was down more than 10% in August, defining a correction. Cyclicals, retail, tech, etc. were all affected. In early October, 90% or more of the S&P 500 SPX,
+ 0.14%
and Nasdaq COMP,
+ 0.09%
stocks had fallen at least 10% from 2021 highs, notes Liz Ann Sonders, chief investment strategist at Charles Schwab SCHW,

In other words, while everyone was looking for a fix, it may have happened already. The market has a funny way of fooling most people most of the time, that way.

5. There was a strong formation of households

Millennials are finally abandoning their parents’ basement – if there was ever any truth to this cliché.

What is true: They are entering the age of majority for marriage and family. Plus, the economy is booming, so they feel confident enough to take the plunge into home ownership.

The result: Household formation is now around two million per year, more than double the rate of the past five years. Home buyers have to buy a lot of things to fill these new homes. It is an integrated economy booster.

6. The consumer is scared, blocked and charged

There are at least half a dozen natural sources of stimulus in the economy ready to spur growth whether the Fed cuts back or not, points out Jim Paulsen, economist and strategist at Leuthold Group. One is household formation, mentioned above. Another is the low inventory levels of companies – which have to restock largely. But for me, the most important thing is the consumer, simply because consumer spending is the main driver of our economy.

The bottom line: consumers are afraid. But they have a ton of purchasing power to tap into when their anxieties subside – perhaps as COVID continues to spread.

Now a few more details. Consumer confidence in August was at its lowest since the start of the pandemic, as measured by the University of Michigan Consumer Confidence Index. It increased in September, but it is still low.

At the same time, consumers have enormous purchasing power. Personal savings represent around 12% of GDP. That’s double the long-term average of around 6-7%, notes Paulsen. Net worth in relation to income is at an all time high.

Don’t make the mistake of thinking that it’s only the rich who get richer because of the stock market. Homes are also on the rise, and most people own homes. The ratio of household debt to personal income is the lowest since 1985.

“Consumers are scared and have untapped purchasing power,” says Paulsen. “This pessimistic mindset combined with excessive purchasing power has historically produced strong market gains with infrequent declines,” he said. “This ratio depicts a bull market that is still in its infancy.”

Actions to buy

Since the consumer is such an important part of this dynamic, I say go with retail stocks. They have been underperforming which also makes them attractive.

Morningstar quotes Bath & Body Works BBWI,
+ 0.16%
as a moat retailer and discount trader. The body care and home fragrance retailer has a four-star rating because its shares so far are trading below Morningstar’s “fair value” estimate of $ 79 for the name.

As for the gap, analyst Jaime Katz cites the firm’s strong brand, leadership position in its field and average return on invested capital of 30%, well above its weighted average cost of capital of 8%. .

Eric Marshall, Portfolio Manager of Hodges Small Cap HDPSX Fund,
loves clothing retailer American Eagle Outfitters AEO,
+ 0.92%,
which is down more than 35% from this year’s highs. The company posted record second quarter revenue of $ 1.19 billion, up 35% year-over-year.

The main driver of growth is its popular brand Aerie. Marshall believes the company will earn over $ 2 per share this year, making American Eagle stock a good deal at around 13 times earnings over time.

Marshall is worth listening to because he has a warm hand. Its Hodges small-cap fund is up 31% this year, beating its small mix category and the benchmark Russell 2000 by 12 to 18 percentage points, according to Morningstar.

Marshall also likes Academy Sports and Outdoors ASO,
+ 0.12%,
which sells sports and outdoor recreation items. The pandemic has been a boon to this business due to the popularity of outdoor activities. Strong pandemic sales have helped the company reduce its high level of debt. Analysts fear the popularity of pandemic-inspired outdoor activities may wane, but Marshall believes the outdoor lifestyle will remain in fashion.

While many retail investors are in awe of the power of Amazon.com AMZN,
+ 0.41%
and Walmart WMT,
Motley Fool’s retail industry analyst Asit Sharma favors niche chains that have mastered the “direct to consumer” sales model. They offer great stores and solid products, but also the mix of delivery options that shoppers want, including in-store pickup for items purchased online.

“The retail industry always has a bad reputation because everyone is focusing on yesterday’s story, and Amazon and Walmart are removing all physical stores,” Sharma says. But this is not the case. Many retailers offer a mix of great in-store experiences and unique products that the two retail giants can’t quite deliver.

Here Sharma quotes Lululemon Athletica LULU,
“We love that the company is dedicating its own research and development to innovation on the fabric side. The stores give consumers the opportunity to experience personalized fabrics in person.

Sharma also promotes Yeti Holdings YETI,
which sells coolers, “drinks” and outdoor gear. For a larger-cap name, consider popular retail giant Target TGT,
for its “all under one roof” approach to retail.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned AMZN. Brush suggested AEO, AMZN, WMT, and TGT in their stock newsletter, Brush Up on Stocks. Follow him on twitter @mbrushstocks.

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