Easy money?

Stocks were on the climb yesterday as investors could not shake off the happy feelings from Wednesday’s FOMC minutes release. “Maybe the Fed is not so terrible, after all” became the investment thesis of the day.

Now what? When I speak with clients, family, friends, or colleagues, they more often than not ask me questions about the stock market or individual stocks, which shouldn’t surprise you. I mean who doesn’t want to know which stock is going to go up and which down, or exactly when the market will break free of its recent malaise. Of course, there are no easy answers to those questions, but I always try my level best to provide as much information as possible…without actually calling out the winners, losers, bottoms, or tops. Of course, the information is timely and, um… informative, but it usually lacks the buy this or sell that, which is what we all would like. The reality is that there is no solid, repeatable method for guaranteed success. Don’t hang up just yet, there is hope. While we can’t guarantee a win 100% of the time, we can certainly increase our probability for success.

These past few months have been very trying for stock investors. Holding just a handful of highfliers for past several years has created great wealth. Sure, March 2020 was a scary month, but before most of us started reminiscing of fall (as in the season) 2008, the markets turned around and went on an almost 2-year rocket ride with the S&P500 gaining +114% and the Nasdaq popping by some +134%. It all seemed to happen so fast, perhaps too fast. By last summer I found that even my most judicious friends started to believe that stocks could only go up. At that point THEY were telling me to buy this or buy that. I began to notice that many began to lower their bars for quality in the stocks they were selecting. They began to ignore the risks associated with buying fresh-faced growth stocks with little or no proven track records. I couldn’t blame them because the strategy was working. It appeared to be so foolproof that the strategy was expanded to include buy all dips and double down whenever possible. It was all working fantastically…until it didn’t. Double-digit swoons like the one we have been experiencing year-to-date have been rare in recent years. Even more rare are some of the painful single session drops we have witnessed in recent months. The resulting losses have led many to rethink their investment strategies – and that might be a good thing. This is a good opportunity to recognize that picking investments takes a lot of work and that there are no easy winners. You can increase your probability for success by doing your homework and selecting quality stocks. Companies with solid financials, strong fundamentals, consistent track records, and good management have the best chance to succeed in all market conditions. Unfortunately, even good stocks are punished in corrections, but they are most likely to be the winningest holdings when the corrections end. It is clear that market conditions this year are vastly different than last year or even the year before. Ultimately those conditions will improve and when they do, patience and hard work will pay off. No guarantees, but highly probable.

WHAT’S SHAKIN’

Costco Wholesale Corp (COST) is trading lower by -1.29% in the premarket despite announcing that it beat ESP and Revenue estimates by +0.41% and +1.98% respectively. The announcement showed that Costco’s gross margins were under pressure due to inflation. The company offset some of the margin challenges by controlling expenses. Dividend yield: 0.70%. Potential average analyst price target upside: +21.3%.

Ulta Beauty Inc (ULTA) shares are higher by +8.37% in the premarket after announcing that it handily beat EPS and Sales estimates by +41.55% and +10.58% respectively. In addition, the company raised full year EPS and Revenue guidance. Potential average analyst price target upside: +20.1%.

YESTERDAY’S MARKETS

Stocks rallied yesterday as investors continued to react to the prior day’s revelation that the Fed may act with more caution. The S&P500 gained +1.99%, the Dow Jones Industrial Average climbed by +1.61%, the Nasdaq Composite Index traded higher by +2.68%, and the Russell 2000 Index jumped by +2.17%. Bonds were higher and 10-year Treasury Notes yields were unchanged at 2.74%. Cryptos fell by -4.51% and Bitcoin declined by -1.1%.

NXT UP

• Personal Income and Personal Spending (April) are expected to have risen by +0.5% and +0.8% respectively after rising by +0.5% and +1.1% in March.
• PCE Deflator (April) may have eased to 6.2% from 6.6%. This is a big one to watch.
• University of Michigan Sentiment (May) is expected to be 59.1, in line with its earlier in the month estimate.
• Next week will be a shortened week due to Monday’s Memorial Day market closure. We will get more housing numbers, Conference Board Consumer Confidence, ISM Manufacturing, JOLTS Job Openings, The Fed Beige Book, Factory Orders, and the monthly employment figures. Check back on Tuesday for calendars and details.