I count myself lucky that most of my young investing education came from actually reading Cabot Market Letter (the forerunner to Cabot Growth Investor)—my interest in the market when I was in high school happened to occur just as my father subscribed to the advisory. (Thank you, Dad!) Not surprisingly, I was a big fan, but more important, I learned a lot of the real-life market lessons early on: Cut losses short, let winners run, stick with the real leaders—and, possibly most important, believe what you see.
I’ve been thinking about that last point recently, as we’ve seen the Middle East tensions remain in place, with various threats, rumors and reports that have kept anxiety high. That, in turn, has kept oil prices elevated (West Texas crude is still in the mid-$90 range even after Wednesday’s bout of dovish news), has gasoline still above its late-March peak and, importantly, has long-term Treasury rates knocking on multi-month resistance in the 5% range as the market considers future rate hikes. None of that can be considered bullish.
But what has the market been doing? It’s not just advancing, but skyrocketing! And it’s not just the Mag. 7 (though they have been doing well), but the upmove has been led by a gaggle of growth and high relative strength names—mostly AI-related names to start, though I’m seeing things broaden out with more medical and one-off situations emerging, too.
Moreover, if you’re a believer that unusual strength begets more strength (which I am), then we have plenty more to go. I won’t give away the store here, but suffice it to say that the recent advance has been so powerful and persistent that it’s rarely been seen—and when it has, it’s always led to good results for many months in the future and, most often, has come at the start of major, longer-lasting advances.
In some sense, this reminds me of the 2020 advance, which began in March even as the virus was raging, infections were growing and the economy was shut down; the famous number that year came in late July, when Q2 GDP (April-June) was down 34%!! I distinctly remember being on vacation at a townhouse in North Carolina that summer when that figure was released; I was gabbing with another vacationer in the pool and, after telling him what I did, he said, “All I know is you should tell them not to buy stocks right now.” Things aren’t nearly as intense as that these days, but the general theme makes sense.
Simply put: As an investor, you should believe what you see—which means being bullish on the market today. That’s not to say there won’t be near-term dips or some sharp rotation from time to time (there will), but the intermediate- to longer-term evidence is giving a green light.
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You can apply the same to individual stocks right now. On one hand, you have some names that are well known, relatively well loved and posting truly fantastic numbers. Palantir (PLTR), which, fundamentally anyway, quacks like the Microsoft of the AI age, reported Q1 numbers this week that were awesome: Sales growth accelerated again (up 85%), while earnings were up 154% and free cash flow in the quarter was bigger than earnings, and bigger than the revenue total from Q1 last year! Analysts see earnings up 85% this year as a whole and another 42% next, both of which are likely conservative.
And what has the stock done of late during this acceleration, and in response to this week’s numbers? Not much—the stock essentially began to top out last August, with any move higher from there quickly rejected. And more recently, PLTR has been living below its long-term 40-week line since early February. Obviously, things can change, but the evidence tells us PLTR hasn’t been a leader (or even a decent performer) for many months.
Conversely, you have another liquid stock, but one that lost most of its glamour luster after the pandemic: Twilio (TWLO) has a nice business (cloud-based programmable communications tools; clients to embed voice, messaging, email or verification right into applications) that’s seen some acceleration of late—though, in Q1, sales were up “only” 16% and earnings up 32%, with mid-teens growth likely for the next few quarters. Very solid, but nothing like Palantir.
But the stock smells something different and more positive happening: TWLO galloped out of a 15-month launching pad last week on a big pickup in volume—looking like it’s started another run.
My point here isn’t to ignore the fundamentals and simply go with the chart—you need a good story, good numbers and a good chart. But my point is to make sure your thoughts are backed up by the market: Going with what you see and not what you may believe is key, especially these days when the market is sending a clear message.
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