Don't Lose Sight of the Big Picture As long-term investors, we always need to be looking ahead. Getting bogged down in the past doesn't help our investment strategy. What's more important for us is to be able to see where we're heading. So today, I want to look at what the rest of this year could look like... and what it means for investors along the way. Headline No. 1: The big rally in July could lead to a second-half rebound for stocks. McCall's Call: We've had a rough start for stocks in 2022. But that doesn't mean the entire year is shot... The benchmark S&P 500 Index fell 21% in the first half of the year. The tech-heavy Nasdaq Composite Index fell 30%. And if you held a lot of growth stocks, you know that many individual stocks fell even further. It was the S&P 500's worst first half since 1970. There's no other way to put it... It was just plain ugly. But that's in the past now. And stocks had a strong rebound in July that could point to bigger gains by year's end. Last month, the S&P 500 and the Nasdaq climbed 9.1% and 12.3%, respectively. Huge one-month gains like these are uncommon. According to chartered market technician ("CMT") Ryan Detrick – from the Carson Group – there's a good chance that July's rally could be the start of a bigger move higher. Since 1945, the S&P 500 has climbed more than 9% in a month just 17 other times. That's only about 2% of all months over that span. Over the next three months, six months, and 12 months, the index was up 3.5%, 10%, and 15.4%, respectively. Those are solid gains. The six-month gains roughly match the average annual gain of the stock market (about 10.7%). And the one-year returns are about 40% higher than the long-term average return for stocks. You can see a summary of Detrick's recent study in the table below... It's also important to note that after a signal, the S&P 500 was higher a year later 82% of the time. Here are my thoughts on this... After a rough start, the market shaped up in a big way in July. And with all the negativity surrounding stocks after the first half of the year, I think the odds of a second-half surge are high. But I wouldn't pile in immediately... Historically, August and September are two of the worst months for stocks. Over the past 30 years, the S&P 500's average return for those months has been negative 0.2% and negative 0.4%, respectively. Now, those aren't terrible returns. But there's a good chance that stocks could struggle slightly over the next few months. I want to be clear though: I would use any weakness over the next two months to add new positions for the last quarter of the year. See, the best time to own stocks is often from October to December. Over that same 30-year span, stocks are up about 4.5% on average in the final three months of the year. That's nearly half of their average annual gains – in just three months. Don't be swayed by everything you hear from the traditional media. The big picture for stocks is improving. And the odds that stocks will be higher a year from now are about 82%. I like the upside potential for stocks with that tailwind. So I would get ready to take advantage of this setup in the months to come. Headline No. 2: Cloud-infrastructure spending jumped 32% year over year to $62.3 billion in the second quarter. McCall's Call: Even with all the challenges facing businesses today, companies are continuing to spend big on cloud software. Technology research firm Canalys released a study showing the big jump in cloud-infrastructure revenue in the second quarter. It even jumped 11% from the first three months of the year. And I'm willing to bet this growth is nowhere near over... Microsoft (MSFT) CEO Satya Nadella knows cloud infrastructure as well as almost anyone – Microsoft's Azure is the second-largest cloud infrastructure provider in the U.S. In late 2020, he said that global technology-infrastructure spending as a percentage of gross domestic product would double to 10% by the end of the decade. But like anything in life, that growth won't be in a straight line. There will be "noise" when you look at these growth rates on a quarterly basis. On recent earnings calls, Nadella has noted that only when you look at the big picture will you see the powerful uptrend in digital-infrastructure spending. This is an important point for long-term investors. And it's not just tied to digital-infrastructure spending... If you think about the megatrends we follow here in Daily Insight, we should expect short-term noise and choppiness. There will be times of quick rallies, harsh pullbacks, and even points where it seems like stocks aren't moving in one direction or the other. It's important not to let the volatility shake you. We're not in these trends for the next six or 12 months. Instead, I like to set an investment horizon of a few years (or even longer)... I can almost guarantee that by the end of the Roaring 2020s, there will be more electric vehicles, more power generated from clean energy, and more 3D-printed components used in manufacturing than there are today. But some investors may lose sight of that if they see a blip in revenue, orders, or any other metric in a given quarter. Sure, looking at one quarterly report can give you a good snapshot of the business, but you won't get the full picture. Over time, the trend becomes much clearer. That's why I encourage my readers to think long term so they can see that big picture. And once you do, I hope you stick with it so you're able to see our megatrends play out in real time. Here's to the future, Matt McCall Editor, Daily Insight August 3, 2022 P.S. It's crucial to pay attention to what's in front of us rather than what's behind us. And right now, an economic phenomenon called "The Flippening" is brewing beneath the market's surface. It could have more dramatic implications for your money than inflation, Social Security failure, a national mental-health crisis, or war overseas – combined. And anyone who doesn't fully understand what's going on will be left behind. Brands you've known and used your whole life will go bankrupt as a result. So to help position your portfolio for what's ahead, I've published two reports that lay out everything you need to know about the Flippening – including five companies that are leading their industries and five that are particularly vulnerable. Plus, I share my No. 1 stock to buy today. Click here to get the details. Did You Miss My Latest Podcast Video? Over my 20-plus years of working in the financial media, I've made some comments that got under people's skin... but nothing gets people more riled up than when I talk about gold. So on this episode of Making Money With Matt McCall, I provide a deeper understanding of where I'm coming from and why I believe gold is a bad investment today. However, just because I don't like gold, it doesn't mean that's my view on all metals and mining sectors. So I also cover many metals and more in the commodities industry that I believe are great long-term investment opportunities. Don't miss out on my thoughts today. |