How About “No Landing”?
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The red-hot U.S. jobs report | One big earnings day for Big Tech | Don’t ignore the “defensive rotation” | A straightforward method for making an extra $60k in 2024…
By Michael Salvatore, Editor, TradeSmith Daily
Last week ended with one big bang.
The source? A spicy jobs report.
It showed 353,000 jobs added to the U.S. economy… well above economist estimates. The unemployment rate held firm at 3.7%. And wage growth jumped from December at the fastest pace since March 2022.
It shows a stubborn, “American exceptionalism”-style resilience for the U.S. economy. One that traders interpret to mean we aren’t getting rate cuts anytime soon, and we should learn to live with — and try to love — the high-rate regime.
Treasury yields spiked once the news hit. The S&P 500 (blue line) climbed along with the dollar (orange line) — breaking its recent inverse correlation.
This comes after a mostly flat inflation number… and an incredible GDP print of 3.3% for the fourth quarter of 2023.
Seasoned traders know the market never makes it easy.
But we’ve gone from “hard landing” recession fears… to “soft landing” optimism… and now a wild-card “no landing” narrative is beginning to form.
This is where inflation, interest rates, and economic growth stay elevated all at once.
Sticky inflation is not something anyone wants. But if the tradeoff is above-trend growth and a higher stock market, as we’ve been seeing, there’s plenty to tide us over.
Whether this economic plane stays cloud-bound or hits the runway with the landing gear up, our plan at TradeSmith Daily remains simple:
- Buy high-quality businesses, like those that rate highly on the Ratings Gauge and Business Quality Score (BQS).
- Devote some cash to short-term fixed income like Treasury bills, which pay out a max of 5.4% a year as I write.
- And on the speculative side, don’t ignore what’s happening in crypto. Despite recent waffling, there’s a strong and growing sentiment among TradeSmith’s brightest minds that it’ll be a big story over the next several years.
❖ The biggest day of earnings season blew the doors off…
After Thursday’s close, three of the world’s biggest tech companies reported results — Apple (AAPL), Amazon (AMZN), and Meta (META) — that stunned the Street in different ways.Meta jumped 20%, cementing its place in the trillion-dollar market cap club, after beating expectations on both earnings and revenue. Not only that, but the company raised its forward guidance and both announced stock buybacks and initiated a 50-cent-per-share dividend.
Recall, this was the company everyone was clowning on — and more importantly, aggressively selling — back in 2022 for getting fully onboard the “Metaverse” hype train just as it went off the rails.
Now, it’s one of the great comeback stories in market history, with the stock rising 425% in about a year and change.
Amazon, too, was a blowout. Net income surged to $10.6 billion compared to just $278 million a year before. Not a typo. $278 million with an “m” to $10.6 billion with a “b.” That’s a change of 3,712% in a single year.
Somehow even more exciting is Amazon’s first A.I. product, a shopping assistant called Rufus. This bot is rolling out to Amazon shoppers now, and it’ll be fascinating to see how it changes customers’ behavior.
Finally, the mixed bag…
Apple finally got its business in order on the latest earnings report, breaking a yearlong streak of falling revenue thanks to a stronger-than-expected holiday season. But the stock sank as much as 3.73% after reporting major sales declines in China, its third-largest market.
China has been Apple’s Achilles’ heel for some time now, and Wall Street is no fan of the company’s struggling efforts there. Perhaps new product launches, like its first foray into mixed reality with its $3,500 Vision Pro headset, will make up for lost revenue down the line.
And, not to be left out, CEO Tim Cook did tease an A.I. announcement later in the year, keeping it vague.
I’ve heard from plenty of iPhone users that the onboard assistant, Siri, is all but useless. And to be fair, I wouldn’t call Google Assistant that much better.
But if Apple can get A.I. right, creating the first true digital assistant that does what you need it to do consistently, it might get Android-using folks like myself to make the switch — a potential sales boon for the company.
Lest we forget, AAPL has a BQS of 99 and a Strong Bullish rating of 90.
These are the type of stocks to buy for a “no landing” scenario. Tech has caught the bulk of investor capital in this unique environment and should continue to.
We can’t forget about big tech’s massive cash hoards, either — which put them in a unique defensive position on top of their dominance.
But Big Tech companies aren’t the only ones playing defense…
❖ Investors are hedging new highs with defensive moves…
Check out this chart, showing the performance of Consumer Staples stocks against Consumer Discretionary stocks over the past few months.
We first looked at this defensive posturing a couple weeks ago, noting that Staples stocks were weak against the broad market. This time, let’s zero in on Discretionary stocks — the antithesis to Staples.
When the blue line at the top rises, Staples are beating Discretionary stocks — and when it drops, the opposite is true.
As you can see, that’s been happening since about Christmastime. And the ratio has shown a positive momentum divergence on the Relative Strength Index (RSI) and Moving Average Convergence/Divergency (MACD) indicators since last summer, as the ratio fell.
On the chart above, we can see the two momentum indicators rising as the ratio level falls. When this happens — a positive divergence — it tends to signal an imminent re-alignment that, in cases like this, would send the ratio soaring skyward.
This, to me, suggests investors are quietly making defensive moves in the background. They’re preparing for a regime change from high-risk plays to lower-risk value names, much like we saw in 2022.
Speaking of, there’s more to see when we zoom out…
As the ratio between Staples and Discretionary stocks fell throughout 2021, the RSI (in purple at the bottom) made a higher low, which signaled the bottom.
We’re seeing that again today, as the RSI for this ratio troughed in the summer of ’23 and has made a higher low even as the price continued to fall.
It’s a warning sign, to be sure. But it’s also a great demonstration of the time-tested phrase “there’s always a bull market somewhere.”
Rotating into Staples stocks wound up being a fantastic move at the dawn of the ’22 bear market, as they’d go on to outperform Discretionary stocks by 75% at the peak. It’s the kind of thing we all need to get used to in a market that gets continually less precedented by the day.
Be willing to trade the market. Sitting in index funds will guarantee average returns. And learning the methods that help you spot warning signs is a necessary precursor to beating the market.
We all have different methods. But for those like me who simply love to buy high-quality growth stocks and hold them for as long as it makes sense to, you should talk to Louis Navellier…
❖ This stock-picking legend thinks the road ahead may be bumpy…
But it’s not stopping him from combing through the markets to find the world’s healthiest, highest-quality growth stocks.In a recent video presentation, Louis Navellier told his readers he sees alarming similarities of the 2020s to the 1970s — where high energy prices, inflation, and interest rates reigned supreme alongside a relatively weak economy.
But even if it doesn’t… even if the rosiest of rosy futures becomes reality… Louis has a plan to make consistent returns from the stock market that can help any investor make out like a bandit.
He thinks this plan could net you cash returns of $60k through the end of 2024.
And he’s doing it the old-fashioned way — buy and hold great stocks that are going up — but with a modern twist.
Louis’ stock-picking engine just got a massive upgrade in the form of artificial intelligence. The algorithm he’s used for decades is stronger than ever.
That’s why he believes it’ll outperform even last year’s blockbuster performance, where the average payout from 36 trades was a whopping $1,485.
You can see how to get involved with Louis’ presentation right here.
Above all though, remember that no matter what kind of landing we get — and that’s if we even get one — buying quality stocks in strong uptrends will always be a winning move.
We aim to do everything we can to put those names in front of you, right here in TradeSmith Daily in everything else we publish.
In fact, stay tuned for tomorrow’s Daily, where we share a familiar ticker that’s set to defy expectations yet again… potentially adding another $1 trillion in value from here.
To your health and wealth,
Michael Salvatore
Editor, TradeSmith Daily