by Jason Bodner

May 18, 2021

It’s human to want permanence — something to set and forget. I strive to lock in something permanent with the data when analyzing stocks. I like things in neat little boxes, but sometimes life has other plans.

Clearly, I’m not alone.

When NASA sent humans to the moon, they wanted a permanent reminder, so each moon mission left an American flag. But now, 50 years later, all 6 flags have been bleached bone-white by the sun’s radiation.

It appears that my stock market flags might have been bleached bone-white, too.

When the market data was disintegrating last week, I naturally was ready with a forecast. Then along came Thursday and Friday. The growth bounce…  Toxic since March, growth suddenly caught relief.

Here’s what I think is going on: Earnings season has been stunning, with nearly 90% of companies beating analyst earnings and sales expectations. The average earnings beat was north of 20%. Despite that, growth stocks have been under attack for weeks. It’s agonizing for growth investors like me.

The main culprit was inflation. Fears of vicious inflation intensified the selling of anything with a growth multiple (stocks trading at a premium because of the perception they should maintain growing sales and earnings). Investors pay up to get that growth, because – when humming full swing – it’s hard to beat.

President Biden’s tax plan – basically, to penalize high-earners with higher long-term capital gains rates, and higher corporate tax rates – was a sudden slap for growth. Dividend stocks have been getting scooped up on the assumption that higher dividend taxation is one taboo the administration won’t violate.

Tough tax talk intensified anxiety over peak earnings momentum. The fact that growth had been heavily concentrated in “stay-at-home” and tech stocks was another nail in the coffin. A reopening economy and rapid vaccination fueled demand for beaten down value stocks poised to rise in a post-lockdown world.

Things hit fever-pitch on Wednesday as the April CPI showed a +0.8% rise vs. expectations of +0.3%. That’s what Wall Street feared most. That sent NASDAQ stocks even further down the drain. On Thursday the PPI gained 0.6%, verifying that prices are rising everywhere.

Growth stocks should have kept falling, but on Friday, growth began to bounce. Investors noticed that Lumber prices continued to fall, while Iron Ore and 10-year Treasury yields were dropping too: Lumber Price ChartIron Ore ChartTen Year Treasury Bond

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

These price declines indicate that we might have hit peak inflation fears. Fear is a powerful motivator, but it only goes so far. Eventually, logic prevails. If inflation scares have climaxed, growth stocks are ready to bounce. Friday finally brought relief.

My flags suddenly look bleached out. Data has an awesome but not perfect track record.

The BMI fell hard into Thursday. But selling evaporated on Friday. BIG Money Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Zooming in, you can see Friday the BMI actually popped slightly higher, from 68.6% to 69.3%: BMI Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Living by data means that anticipation becomes more difficult than investing by “gut feel.” Everything is a trade-off. Keep that in mind when asking if the lows are in for growth stocks. The sudden-turn-on-a-dime of Big Money data tells me that probably yes, the growth lows are in, near-term, but I need to see confirmation from the data to be convinced. Naturally, that means that it’s difficult to time the tops and bottoms when waiting for data confirmation.

Investors looking for growth discounts might find this a great time to dip toes into the market. The highest-quality growth names have been beaten to a pulp, but, as I’ve said many times before, outlier stocks bounce hardest and highest.

I bought some great stocks on sale last week, the week before, and the week before that. Timing is always tough. I may be underwater near-term. But I know companies that grow their sales and earnings with a long history of doing so will be fine in the future. The hard part is waiting to be proven right.

The data is on my side. I looked at the MAPsignals daily stock data on Saturday morning (using Friday’s close): 559 stocks and ETFs saw unusually large trading volumes, what I call “Big Money trading.” Out of those, 107 were ETFs, leaving 452 stocks. I removed 64 stock buys and 11 stock sells. Of the 377 stocks remaining, I wanted to see what was getting bought in Big Money style but not yet high enough in price for a buy signal. I removed stocks not positive on the day, which was roughly 10%, or 37 stocks.

From there, I filtered out stocks with zero or negative sales and earnings growth over the past three years. I was left with 93 stocks. This means 25% of the stocks getting bought “under-the-surface” had excellent sales and earnings growth. In other words, the big bounce on Friday was concentrated in growth stocks.

This is how the best-of-the-best broke down by sector: Sector Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That list screams short covering and bargain hunting in beaten-down growth. One day does not a market make, but it certainly feels better knowing there are data points for a growth bounce.

One final thought: Tax deadline was delayed until May 17th. It’s human nature to procrastinate and leave things until the last minute, especially when your stocks are suddenly falling. It is entirely possible that some of this growth selling was intensified to raise cash for tax bills. In an up-trending market like we’ve seen the last 12 months, it makes sense to sell the best near tax-time. When assets fall, it’s human nature to wait for a comeback. But the clock was still ticking, and this Monday the tax deadline was upon us.

My data indicated more deterioration last week – until Friday, that is. I’m committed to data, even when it changes suddenly…and especially when it changes suddenly. Ripe for the times, I remember when Tony Robbins said: “Stay committed to your decisions but stay flexible in your approach.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.

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