It’s Friday in Wall Street Daily Nation. That means we’re pausing our regular commentary-based articles. Instead, we’re using charts to highlight some of the most important investment and economic news.
As you’ll see in a moment, if you caved to nonsensical financial advice to “buy the election and sell the inauguration” — you made a big mistake.
The “meaningful correction” that was supposed to begin immediately after President Trump was sworn into office didn’t materialize.
The good news? It might not be too late to profit from the Trump rally. Just choose wisely. I’ll share two stocks destined to keep struggling. Ditto for a whole herd of billion-dollar startups. Here’s why…
Best. Earnings. Season. Ever?
On Feb. 1, I provided the two most critical metrics to track this earnings reporting season. If you completely forgot, the price performance of the S&P 500 index pretty much sums it up.
Since the beginning of the reporting season, the bellwether index is up more than 3%. That ranks as the best performance during earnings since the fourth quarter of 2014, according to Bespoke Investment Group.
What’s driving the rally? Companies delivering better-than-expected sales and earnings, of course. Most notably, the revenue “beat rate” currently stands at 57%.
That’s the best showing since — you guessed it — the fourth quarter of 2014.
Admittedly, there are a lot of ways to “inflate” earnings to temporarily paint a rosier picture. But there’s no such room for mass manipulation of sales. If revenue’s up, demand’s up. And that’s nothing but good news for businesses and, in turn, stock prices.
The trend is our friend here, too.
When the S&P 500 enjoys a strong rally during earnings season, defined as a 3% or higher move, it keeps rallying during the earnings off-season — showing positive returns 76% of the time, according to Bespoke.
Bottom line: If you bailed on stocks prematurely, you better get back in before it’s too late. Just don’t buy these two stocks…
Two Timely Shorts
Gun-maker stocks enjoyed an epic rally during President Obama’s reign. And both are officially over now.
As you can see, shares of Sturm, Ruger & Co. Inc. (RGR) and American Outdoor Brands Corp. (AOBC), formerly known as Smith & Wesson, got clobbered immediately after the election ended.
Within three days, both stocks dropped 26%. And the pain continued, particularly for American Outdoor Brands. Since then, it’s shed another 10% in value.
When the fear of a repeal of or a revision to the Second Amendment ceases, so does runaway demand to stockpile weapons and ammunition. Expect more downside ahead.
Silicon Valley’s IPO Dreams Evaporating Quickly
Gun-maker investors aren’t the only ones confronting a harsh new reality. So are the all the darling unicorns in Silicon Valley, which we wrote about in late January.
Visions of rainbows and billion-dollar public debuts are being dashed. Quickly.
All the more so because demand for Snap’s “hot IPO” isn’t as hot as expected. Per Bloomberg, the social-media company pretending to be a camera company is struggling to justify its inflated valuation to investors.
So what’s Plan B?
Based on Silicon Valley Bank’s recent survey of 941 startups, a whopping 53% see a buyout as their endgame. Only 16% see an IPO as a viable option now. Meanwhile, 13% don’t have a clue — and 18% are in denial. (You can’t stay private forever.)
News flash: If the IPO window slams shut on all these startups, most of the “acquisitions” are going to be at extremely depressed valuations. Instead of takeovers, we’ll experience a boom in take-unders.
This proves once again that paper wealth (i.e., multibillion-dollar private valuations) doesn’t always equal real-world wealth.
Ahead of the tape,
Investment Director, Wall Street Daily
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