Belt Tightening Isn't Stopping This Bull Market
Editor's note: The market is moving into bullish territory. But according to Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, that doesn't mean you won't find dark spots beneath the surface. In today's Weekend Edition, we're taking a break from our usual fare to share a recent issue of the free Chaikin PowerFeed e-letter. In it, Marc details why consumer spending is showing signs of weakness – and why you need to be selective to find the bullish opportunities out there...
Folks, as I told readers recently, the next few months will be a tug-of-war...
The strong economy will have to battle the shifting sands of U.S. monetary, fiscal, and tariff policies. And that will challenge the resolve of this bull market.
We're seeing that play out in real time.
The broad market turned down at the end of 2024. And it struggled to make new highs for weeks.
But now, that's changing...
As measured by the SPDR S&P 500 Fund (SPY), the broad market moved to a "bullish" rating in the Power Gauge – the tool we use at Chaikin Analytics for analyzing the market – late last week. And the fund finally hit new highs recently.
A similar story is playing out in the tech-heavy Nasdaq 100 Index. In the Power Gauge, we measure this benchmark using the Invesco QQQ Trust (QQQ). And QQQ earns a "bullish" rating right now.
This is a major change. It means that more of the biggest companies in the market are "bullish"... and that stocks look poised to move higher.
Let's take a closer look...
Starting with the S&P 500 Index, we see considerable renewed strength.
I'm particularly focused on the strong stock performance of companies like Amazon (AMZN), Costco Wholesale (COST), and Walmart (WMT).
Both Costco and Walmart have outperformed the broad market since the start of the year. Meanwhile, Amazon has underperformed the S&P 500 by only a couple percentage points.
But taken as a whole, it's obvious that the economy hasn't broken the power of the American consumer.
Despite that, a lot of dark spots remain in the broad market. And the Power Gauge reveals that...
As regular readers know, at Chaikin Analytics, we use the Power Gauge to take the complex fundamentals and technicals of an investment and put them into a simple rating. It tells us whether an investment looks "bullish," "neutral," or "bearish" based on the most important factors at work.
After the slight dip on Thursday, SPY currently earns a "neutral+" rating in our system. And right now, the fund holds 110 stocks with "bearish" and "very bearish" ratings. And it holds 84 stocks rated "bullish" or "very bullish."
So, more of the fund's holdings are in "bearish" territory than in "bullish" territory.
Premium consumer conglomerates are suffering. Specifically, I'm looking at companies like Procter & Gamble (PG) and Mondelez (MDLZ).
Both hold "very bearish" ratings from the Power Gauge. This tells us what we already know.
Consumers haven't stopped spending. But they're starting to tighten their belts.
We saw that play out recently in another consumer giant's fourth-quarter earnings report...
Year over year, McDonald's (MCD) saw same-store sales in the U.S. fall 1.4% for the quarter. That's the company's worst performance since the COVID-19 collapse.
Meanwhile, in-store traffic increased.
This makes sense. McDonald's aggressively raised prices over the past few years. Now, it has gone back to its core principle – value. And consumers are taking advantage of that.
It means that more people are going to the fast-food chain... but they're spending less.
If McDonald's is a microcosm of the economy, I believe we'll see this story play out repeatedly.
Consumers are still spending. But after years of high inflation, they're now looking for deals. And they're forcing companies to offer them.
That means we'll likely see dips in growth across the market. But as prices and buying patterns reset, we'll return to growth.
Put simply, Wall Street took full advantage of inflation. Companies took 10 steps forward on pricing. Now, they're walking one or two steps back.
But that doesn't mean we're done seeing growth...
There are still plenty of "bullish" opportunities in the market. The strong ratings for the S&P 500 and Nasdaq 100 in the Power Gauge prove it.
Good investing,
Marc Chaikin
Editor's note: In this challenging time for investors, one group of stocks is set to benefit most from a huge monetary shift that's about to rock the market. Marc has waited years to share this group of stocks with readers... Now, a rare signal with a perfect track record shows that the time is finally right. And he's revealing how you can position yourself to profit... Click here to learn more.