(Please enjoy this updated version of my weekly commentary published October 21, 2021 from the POWR Stocks Under $10 newsletter).

Over the last week, the S&P 500 is up by more than 3%. Melt-up is an appropriate description as stocks have either moved higher or gone sideways. Any dip has been aggressively bought and resulted in higher highs.

Our portfolio has also done well and is now up nearly 10%, while the S&P 500 is up only 1.5% since we began the service on September 13. We continue to be positioned for a broad-based, market rally that should lead to trending moves in multiple sectors.

I’ve made the case in previous commentaries, and I believe it’s been strengthened by earnings season so far. As of Tuesday, 80% of companies reporting had topped EPS estimates and 85% had beat revenue estimates. Analysts had increased their expectations of EPS growth to 30% from 24% a month ago.

However, we should acknowledge the elephant in the room – inflation. Over the past year, it’s been a constant discussion in earnings calls. However, it hasn’t impacted earnings growth or profit margins. This has continued this quarter as evidenced by the 30% earnings growth and margins at multiyear highs.

But, there have been companies who have seen a drop in earnings or margins compress due to some combination of rising costs, supply chain issues, and difficulty hiring workers to fully meet demand. However, there are also companies experiencing a surge in growth due to these issues.

So, this certainly is a concern and something we need to keep monitoring. It also means that we should be a bit more risk-averse in more inflation-sensitive companies and more risk-tolerant in companies that do well in inflationary climates.

Now, let’s pivot into what themes I find interesting into year-end.

Materials Rebound: Material stocks like metals and steel got slammed as Chinese growth decelerates and some collateral damage from the Evergrande crisis. However, I’m still positive on the outlook for material stocks as I see the commodity cycle being in its early innings and see very cheap valuations. Additionally, buying oversold sectors within uptrends has worked out in the past year.  

Oil to $100? Oil has kind of taken a breather following a couple of weeks of spectacular gains. Falling coronavirus case counts means that demand will continue to rise, while supply has yet to meaningfully increase. Inventories are also below average levels which is remarkable considering the inventory buildup of the past year. The only thing about oil that’s bearish to me is that I can’t think of any reasons to be bearish. (If that makes sense from a contrarian view).

Chinese Turnarounds: The Chinese stocks are in the midst of some impressive bounces. However, they had been crushed so bad that they remain very oversold and historically cheap on a valuation basis. Recent newsflow has been positive as the Chinese government is looking to contain the damage following the Evergrande fiasco.

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All the Best!

Jaimini Desai
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter

SPY shares were trading at $451.52 per share on Friday morning, down $2.07 (-0.46%). Year-to-date, SPY has gained 21.95%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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