It looks quiet out there. Stock volumes are low and it seems like not much is happening.
But, under the surface we see a story emerging… growth stocks are climbing back.
It appears that recently a resurgence emerged for beaten down stalwarts. Only, I’m observing them rising slow and steady, like a rope climber.
Why the sudden growth revival? The media’s main reason might read something like growth selling is overdone, or inflation fears are calming. But the real reason is far simpler: it’s because great stocks just keep trucking higher over time regardless of what they face.
Even all-star winners like Microsoft, Amazon, and Home Depot faced their troubles in the past. They were affected by tax hike fears, inflation fears, rotations… you name it. It’s part of how investor psychology and thus Wall Street really works.
Today let’s look at 2 main reasons growth stocks are climbing back. Stock selling slowed dramatically. One reason might be that earnings have been incredible for the first quarter.
Those 2 reasons alone set the stage for further upside in stocks, specifically high-quality Tech and Discretionary names.
It’s easy to succumb to the media ranting about why growth is over. But at MAPsignals, we focus on data.
Big Money Data: Growth Stocks Are Climbing Back
The Big Money Index shows us lack of direction. Here we are 3 weeks after our Big Money Index Signals Red post:
When we posted that, we saw indications that a pullback was near. Four trading days later the NASDAQ 100 (QQQ ETF) abruptly fell 4.41%.
That was then, this is now. And now it’s incredibly quiet.
Looking at the Daily Big Money Volumes chart it’s easy to see. This chart maps out unusually big trading of both stocks and ETFs according to our algorithms. Look how Monday’s trading tally was the lowest volume trading day in over 5 weeks according to our metrics:
But in this calm after the storm, we see little green sprouts. Let me say it again: Growth stocks are climbing back.
One way we know this is because the level of stock selling slowed dramatically.
You can see that here in our Big Money Stock Buys & Sells chart. It shows the daily total of stocks getting bought and sold.
Look how selling evaporated over the last 2 weeks:
Most of that red you can see in the circle is when growth was under attack. But, not only has growth selling slowed, we’re also seeing fresh signs of buying.
Let’s zoom in:
And that’s not all. We see the same pattern for ETFs. Off to the right there’s hardly any selling registering at all:
You may wonder why this points to growth stocks rebounding? It’s because before we can see big buy signals reappear in growth stocks, we must see selling disappear first.
That’s exactly what our data points to. We even hinted at this last week in our post, brace for more stock market volatility. We saw what we believed to be short covering in top-quality growth names, a trend that still persists.
But get this, yesterday’s data showed a few growth names seeing buy signals. Semiconductors, software, and computer equipment firms saw green. These are the stocks that have been getting punished in favor of reopen stocks since mid-February.
It wouldn’t surprise us if this trend continues in the near future. It’s unsurprising to us, given how strong earnings season has been.
Earnings Growth Has Been Massive in Q1
Never forget this: the biggest driver for stocks over the long-term is earnings.
That’s the single most important variable to a stock’s long-term value. And earnings for the first quarter have been spectacular.
According to FactSet, the S&P 500 recorded year-over-year earnings growth of 51.9% for the first quarter:
Discretionary, Financials, & Materials led the earnings growth by sector.
Revenue growth has been strong too. Technology stocks in the SPX (last quarter) trounced estimates with 94% of the group exceeding revenue estimates:
Guys and gals, this is a terrific fundamental backdrop for stocks. Earnings and revenue are surging. And odds are that Q2 will be just as strong or possibly even better.
That’s not a bearish setup…that’s quite bullish.
So, let’s wrap this all up.
Here’s the bottom line: Growth stock selling slowed tremendously while earnings have been incredible. The combination of these 2 suggests growth stocks are climbing back.
All selloffs eventually pass. Odds are this latest pullback in Technology is coming to its conclusion. So, take off those bear suits …those are too hot and itchy for the summer months anyway.
At MAPsignals, we’ll keep adding on pullbacks because we know how the game is won in the end. Great stocks… TAGU (they all go up) eventually.
So, hang in there, folks. There’s good news out there…you just need to be receptive to it. And for the first time in a while, this week’s Top 20 report will likely have a few growth names on it. So keep on the lookout for that!
One last thing: our latest video series is out, Best ETFs for June 2021. Check it out below as Jason goes over the top 5 Big Money ETFs you should pay attention to this month.
Don’t follow the news, follow the Big Money…
Disclaimer: MAP founders hold long position in MSFT in managed accounts and hold long positions in HD in personal and managed accounts.