Opinion: 6 Reasons This is a New Multi-Year Bull Market and 6 Surprising Sector Stocks You Should Like

Nothing beats the October turmoil to help the weak hands of the market make contact with the inner bears.

But don’t let their negativity reflect on you. We are still approaching the beginning of what will be a multi-year bull market. Here are six reasons to buy stocks now, and six names to consider in one of the best sectors to own right now.

1. Sentiment is down enough

I regularly track investor sentiment in my stock letter (details and link in bio below) to make conflicting “calls” in the market. While most of your money should be in long-term holdings, timing entries when most people are bearish gives you an advantage. This is the case now. Sentiment is not too negative, but it has fallen enough this week to trigger a buy signal in my system.

It’s also worth noting that major media personalities turned rather negative this week, which is another good contrasting signal. (I won’t name names.) And the fact that its negativity is a bullish signal in my book doesn’t mean I think it’s thick. Just that prominent media commentators are consensus sponges. It’s an occupational risk – we can use it to our advantage as investors.

Choose the popular financial media that talks about you, then do the opposite when they are constantly turning negative – or positive.

2. Seasonality is in our favor

The worst month for stocks is October, and the weakest days are October 10 and October 11. Then this dreary month is followed by the strong seasonal phase from January to May when the market is supported by new money coming in. Between November, November and December can be strong as stocks rebound from October weakness and the end of mutual fund tax loss selling season. This ended at the end of October.

3. COVID roll over

It is no secret that the number of cases and hospitalizations has fallen sharply. Last year, cold weather wasn’t the start of the winter COVID flu season. So, it’s not crazy to expect the same thing this year, especially considering all the people who have been vaccinated or infected. The reopening will help boost the economy.

4. Correction may already have occurred

Since the summer, the market has witnessed gradual corrections in various sectors. Contact 2000
rut,
+ 0.16%

The definition of a correction was down more than 10% in August. Cyclical businesses, retail, technology, etc. have been hit. As of early October, 90% or more of the S&P 500
SPX,
+ 0.04%

and Nasdaq
COMP,
-0.18%

Stocks are down at least 10% from their 2021 highs, notes Liz Ann Saunders, chief investment analyst at Charles Schwab.
schw,
+ 1.47%
.

In other words, while everyone was looking for a patch, it may have already happened. The market has a funny way of fooling most people in this way.

5. There was a strong family composition

Millennials are finally letting go of their parental vault — if there is any truth to these cliches.

What’s true: They are entering adulthood for marriage and family. In addition, the economy is booming so they feel confident enough to make themselves drown in home ownership.

The bottom line: Family formation is now around two million families a year, more than double the rate of the past five years. Home buyers have to buy a lot of things to fill those new homes. This is a built-in economy booster.

6. The consumer is afraid, locked and carried

There are at least six natural sources of stimulus in the economy ready to drive growth whether the Federal Reserve is tapering or not, notes Jim Poulsen, economist and strategist at the Leuthold Group. The first is the family composition described above. Another is the low level of stocks in companies – which have to restock big time. But for me, the biggest factor is the consumer, simply because consumer spending is the biggest driver of our economy.

The bottom line: the consumer is afraid. But they have plenty of purchasing power to draw on when their fears subside – perhaps as the coronavirus continues to spread.

Now more details. Consumer confidence in August It was at the lowest level since the pandemic began, as measured by the University of Michigan’s Index of Consumer Confidence. He. She Paid in SeptemberBut it is still low.

At the same time, consumers have an enormous amount of purchasing power. Personal savings amount to about 12% of GDP. That’s double the longer-term average by about 6%-7%, Paulsen points out. Net worth compared to income has reached record levels.

Don’t make the mistake of thinking that only the rich get richer because of the stock market. Homes are also tall, and most people own homes. The ratio of family debt to personal income is the lowest since 1985.

“Consumers are frightened and loaded with untapped purchasing power,” Paulsen says. “This pessimistic mentality combined with excess purchasing power has historically produced strong market gains with infrequent declines,” he says. “This ratio depicts a bull market that is still in its infancy.”

Stores to buy

Since the consumer is a big part of this dynamic, I’d say go with retail stocks. They have underperformed, which also makes them look attractive.

Morningstar cites Bath and Body Works
bbwi,
-0.44%

As a moat retailer and trading at a discount. The body care and home fragrance retailer earned a four-star rating because its stock so far trades below Morningstar’s “fair value” estimate of $79 for the name.

For Moat, analyst Jaime Katz cites the company’s strong brand, leadership position in its space, and an average return of 30% on invested capital, well above the 8% weighted average cost of capital.

Eric Marshall, portfolio manager at Hodges Small Cap
HDPSX,
+ 1.83%
And
Apparel retailer loves American Eagle Outfitters
AEO,
+ 0.60%
And
Which is down 35% from its highs this year. The company reported record revenue of $1.19 billion in the second quarter, up 35% year over year.

The primary driver of growth is its popular Aerie brand. Marshall believes the company will earn more than $2 a share this year, making American Eagle stock a bargain with about 13 times forward earnings.

Marshall is worth listening to because he has a hot hand. Its small-cap Hodges fund is up 31% this year, outperforming the small combinations category and the benchmark Russell 2000 index by 12 to 18 percentage points, according to Morningstar.

Marshall also loves the Sports & Outdoors Academy
ASO,
-1.07%
And
that sells sporting and outdoor leisure goods. The pandemic was a windfall for this company due to the popularity of outside activities. Strong pandemic sales helped the company get rid of its high debt levels. Analysts worry that the popularity of pandemic-inspired outdoor activities will wane, but Marshall believes the outdoor lifestyle will remain popular.

While many retail investors are stunned by the power of Amazon.com
AMZN,
+ 0.13%

Walmart
WMT,
-0.01%
And
Motley Fool retail analyst Asit Sharma favors niche chains that have perfected their “direct-to-consumer” sales model. They offer great stores and solid products, but also provide a mix of delivery options that shoppers want – including picking up items purchased online from the store.

“The retail sector always gets a bad reputation because everyone is so focused on yesterday’s story, that Amazon and Walmart are taking over all the physical stores,” Sharma says. But that is not the issue. Many retailers offer a mix of excellent in-store experiences and unique products that the two retail giants can’t really offer.

Here, Sharma cites Lululemon Athletica
lulu,
-0.62%
.
“We love the fact that the company is spending on its research and development innovations on the textile side.” Stores give consumers an opportunity to personally check out custom fabrics.

Sharma also prefers Yeti Holdings
YETI,
-1.69%
And
Which sells coolers, Drinkware, and outdoor equipment. For a bigger ceiling name, consider popular retail giant Target
TGT,
-0.19%

For the “everything under one roof” approach to retail.

Michael Brush is a columnist for MarketWatch. At the time of publication, it owned AMZN. Brush AEO, AMZN, WMT and TGT suggested in their newsletter, brush on stock. Follow him on Twitter Tweet embed.

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