Earnings Mania and Fed Follies – and the Bear-Market Strategy That Will Help You Win

By TradeSmith Research Team

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With a flood of corporate earnings, an expected U.S. Federal Reserve rate hike, and a barrage of key economic reports projected over the next few days, we could be looking at the most important week in years — one that will help determine where a bearish stock market and a worrisome economy go from here.

And you’ll need more than the insights that emerge from this data dust storm to navigate your way to the end of this year and beyond.

You need an edge.

Today, I’m going to give you both.

  • I’ll show you what you need to watch during the rest of the week.
  • And I’ll tell you about a new strategy that I’ve developed just for this market — one that avoids speculative trapdoors by letting you invest small amounts for potentially hefty payoffs while also giving you income along the way.
My goal: to have you peruse this report and walk away feeling sanguine about “what comes next” because you have a money strategy that gives you safety, income, and a powerful payoff.

Let’s start by talking about what’s coming our way — and why it matters.

A Flood Tide of Numbers

In a report published as a “walkup” to this week, CNBC characterized this week as the “busiest — and [likely] the most important — week of the summer,” and one that “could provide more clues as to whether the economy is heading for recession.” Aptly stated, and with good reason, since:

  • Second-quarter GDP, consumer sentiment, housing data, and other market reports will let us look deep inside the U.S. economy, giving us the kind of heart-and-lung checkup that will tell us if this country is a picture of health or a mere step or two from recession.
  • A tidal wave of corporate earnings reports will be released — more than a third of S&P 500 companies will report this week — with bellwethers like Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Alphabet/Google (GOOGL) and Microsoft Corp. (MSFT) setting the tone.
  • The upcoming meeting of Fed policymakers is widely expected to result in a three-quarter-point hike in benchmark interest rates.
According to CNBC:

Second-quarter gross domestic product is expected Thursday. The Fed’s preferred personal consumption expenditures inflation data comes out Friday morning, as does the employment cost index. Home prices and new home sales are reported Tuesday, and consumer sentiment is released Friday.

“I think what those bigger companies say about the outlook will be more important than the earnings they post. …When you combine that with the statistical reports, which will be backward looking, I think it’s going to be a volatile and important week,” [said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management].

That’s well-said.

According to FactSet Research, S&P 500 profits likely grew about 4% during the second quarter.

But we all know that corporate America likes to “game the system” by underpromising and overdelivering — with larger-than-expected sales and profits to the upside.

In fact, if we add the usual beat rate to the current Q2 profit estimate, the actual earnings growth rate should be closer to 10%. Here’s the most important information from that: If 10% (or something close) is the actual earnings growth rate for the S&P 500 once all is said and done, I expect that to be viewed as a very positive surprise that could send stocks higher. Investors are extremely worried about inflation right now and the impact it could have on corporate profits. And with “headline” inflation rising above 9% year-over-year in June, there is reason to be worried. Rising labor costs are particularly troubling for corporate America.

As things stand now (as you can see in the above chart), full-year 2022 S&P 500 earnings should grow 10% on a year-over-year basis.

Five sectors of the S&P are expected to report double-digit growth, which would be led by energy, industrials, and materials. Energy is, in fact, the only sector where earnings estimates are still on the rise.

But to Grohowski’s point, it’s not just what companies say about their sales and profits that matter: It’s what they say about the future — the “forward guidance,” in the parlance of Wall Street — that will forge investor sentiment coming out of this “busiest” week.

Because we all know that a company can have a super earnings report — but then blunt every bit of that by presenting a dour outlook of “what comes next.”

In my years as an investment pro, I’ve seen that very scenario hundreds of times.

As investors, the move to make here is to position ourselves in a way that lets us ride along if that “what-comes-next” view is bullish — but protects us on the downside if that view is bearish.

I have several strategies that do just that, including one that focuses on “survival stocks” — the companies that can navigate this environment of accelerating inflation and economic uncertainty.

That’s a great one.

But there’s one that’s better still.

And by employing both strategies, you can hand yourself the “edge” that I’m talking about.

My Favorite Bear-Market Investing Strategy

So-called survival stocks are great in a market like this — and beyond. These are companies that have great brand names, are protected by “economic moats,” pay dividends, and have rock-solid finances.

I’ve talked about several here in recent weeks — including companies like PepsiCo Inc. (PEP) and Anheuser-Busch InBev SA/NV (BUD).

Those survival stocks are great “foundational” plays for a portfolio.

But you need more.

Now, more than ever, you need a strategy that gives you potential for low-cost, lower-risk, and high-return investment alternatives to plain old stocks and bonds.

Just to be clear, I’m not talking about taking a speculative flier using stock options. Or penny stocks. Or crypto.

I’m not dismissing any of those — not at all, for each of those investment/trading vehicles has its place. But they’re not part of the specific strategy I’m talking about here.

What I am talking about is a strategy that involves using small amounts of cash to generate extra-high returns – windfalls that are 4x, 5x, and 6x what you’ll get anywhere else.

The key to this approach is something I call “alt shares.”

The “good”: It’s the perfect strategy for a frenetic, uncertain, and risky market like the one we see spooling up this week.

The “better”: If you take a small slice of the underperforming part of your portfolio and put it to work with my alt-shares strategy, you won’t just keep pace with inflation – you’ll downright leapfrog it with the 4x, 5x, and 6x gains I referred to just a moment ago.

The “best”: You can do this with only modest levels of risk.

Alt shares are a favorite of mine right now. My own investment portfolio includes dozens of alt-share positions.

With this strategy, I skip over the conservative dividend payers and look at growth stocks that have “double-your-money” potential. Then I look for alt-share ways to play those stocks.

Here’s what most investors don’t realize: With the major indexes down 20% to 25% — and many individual stocks down much, much more – these alt shares are at unbeatably low prices right now.

I’ve been an investment pro for a long time. And it’s been at least a decade since I’ve seen alt shares trading at levels as low as this.

This is my single-favorite bear-market strategy.

Look at your investments — at a slice of your portfolio that hasn’t done much for a long stretch. Put a tiny bit of that to work here — and reap the windfalls that alt shares deliver.

I can’t say when we’ll see this kind of a major wealth window again.

That’s why I want to tell you all about it right now.

If you’d like to learn the nuts and bolts behind this unique income-generation strategy, click here to watch my broadcast.