It’s been a volatile month thus far for the S&P-500 (SPY), with the index starting the month up nearly 5% before giving back all of its month-to-date gains.
This sharp reversal should not be surprising, given that the 200-day moving average is often a strong area of resistance for the general market when it’s in an intermediate downtrend.
From a fundamental standpoint, the give-back also makes sense, given that little has fundamentally changed with the Federal Reserve still laser-focused on stamping out inflation, regardless of the collateral damage caused by its hawkish stance.
Given the weak performance, the market is now on track to close August down more than 10% year-to-date, which has historically led to further drawdowns in all cases. In fact, the median forward draw-down over the following twelve months was 15.5%, and even using the best four case drawdowns, the average twelve-month forward draw-down was 5.5%.
History doesn’t repeat itself, but it often rhymes, and assuming the S&P-500 closed at 4000 for August, this would point to a drawdown to 3380 between now and summer 2023, or a best case drawdown (average of four smallest draw-downs) to 3780. With even the best-case scenario points to a meaningful downside, caution remains warranted.
The good news is that it’s a market of stocks, not a stock market. Even in intermediate bear markets, investors can enjoy alpha by hunting down the best growth names that exhibit unique relative strength characteristics.
With many FAANG names down over 50%, finding stocks in intermediate uptrends is challenging, but there are a few stand-out names that also have impressive growth metrics. This combination is a recipe for success in all markets, and in this update, we’ll look at two names that fit this bill: Continue reading "Two Growth Stocks With Relative Strength"