Don’t Fear This Correction: 3 Stocks in Rally Mode Right Now
Stocks got another gut punch today as investors went decidedly “risk off” and sent the big market indexes tumbling 1–2%.
Some say ouch — I say great!
Make no mistake, it’s not fun to be in the market when stocks are getting walloped. And they’ve certainly been walloped in the last week. But we’re still within 5% of all-time highs in the S&P 500.
And no matter how you measure it, 2021 has still been a great year so far for investors. The big S&P 500 is still up almost 10% since the start of the year. And as I shared with you just a couple of weeks ago, the average stock in the S&P is actually up far more than that.
Actually, the average stock in the S&P is up a whopping 17.6% so far in 2021!
That’s pretty incredible performance. If we closed the books on the year right now, it’d be a stellar year for the stock market.
Simply put, what we’re witnessing is a correction, not a crash.
It feels more painful than it is because it’s impacting many of the big-name stocks that rallied the hardest last year.
For instance, Apple is down almost twice as much as the S&P 500 this week.
Nowhere is that more clear than in the Nasdaq-100 Index, which is teetering on the edge of breakeven for the year at the same time the S&P is within grabbing distance of double-digit returns.
This isn’t a new phenomenon, either. The shift away from big names has been happening for a while now – it’s why the S&P went on to rally for almost a month more than the Nasdaq.
And it’s why the equal-weight S&P 500 Index looks better still. In fact, the equally weighted index is still well above its May lows as I write.
So what’s the move here as we head into the summer months?
Buy what’s working.
Like I said last week, the data show that owning what’s working is a recipe for significantly outsized gains going forward. Facing a market correction, stocks that have done well for the last six months are 50% more likely to wind up profitable a month later versus those that have underperformed.
Last week, we looked at fintech stocks as a corner of the market that’s hanging strong here.
Another is energy.
After a long slog of underperformance brought on by COVID-19, energy stocks are finally leading other sectors in 2021. And that trend could accelerate as the ongoing pipeline shutdown screws up fuel supplies on the East Coast this week.
Energy is one sector where it’s wise to steer clear of what’s “trendy.” When it comes to what’s working in the sector, old-economy energy producers like Exxon Mobil (NYSE: XOM), Kinder Morgan (NYSE: KMI), and NOV (formerly National Oilwell Varco: NYSE: NOV) are all in solid uptrends right now and on the verge of putting in new breakouts.
This doesn’t look like a temporary pop fueled by the headlines this week – the energy stock rally could have staying power.
Jonas Elmerraji, CMT