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* 🤨 What Recession? 25% Major Market Rebound Ahead

Meet Luke Lango

🤨 WHAT RECESSION? 25% MAJOR MARKET REBOUND AHEAD

Wall Street's recession worries are overblown, presenting significant buying
opportunities

1h ago · August 2, 2024 By Luke Lango and Edited by John Kilhefner

Super Summary:

1. I believe that Wall Street’s current recession worries are exaggerated,
presenting significant buying opportunities in the stock market. The recent
selloff is a result of the weak July Jobs Report, which showed an unexpected
spike in unemployment to 4.3%.
2. The market rally in 2023 and 2024 was driven by hopes for a “soft landing” –
a gradual economic weakening that would reduce inflation without causing a
recession. However, recent data suggests a more rapid economic slowdown,
leading to concerns about a potential “hard landing.”
3. Despite these worries, I don’t believe we’re heading into a recession. The
Weekly Economic Index, a real-time measure of U.S. economic growth, still
shows normal levels around 2%. Any economic weakening can be counteracted by
Federal Reserve rate cuts in the coming months.
4. The Fed has significant ammunition to combat economic weakness, having hiked
rates 21 times in 2022 and 2023. The market anticipates six rate cuts in the
next four Fed meetings, which should help strengthen the economy and avoid a
recession.
5. Amid recession fears, the <strong>AI investment boom</strong> continues.
Major tech companies like Meta, Apple, Amazon, and Alphabet are maintaining
or increasing their AI spending. This boom, coupled with rate cuts, should
reinvigorate the economy and stock market.
6. I expect strong earnings growth and valuation multiple expansion to drive
stocks higher over the next six months. The Q2 earnings season has been
strong, with average sales growth of 5% and profit growth of 11%. I
anticipate profit growth rates to accelerate toward 15% in coming quarters.
7. Based on projected 15% profit growth and 10% valuation multiple expansion, I
believe stocks could rise by at least 25% over the next year. However, it’s
advisable to wait for the market to reach major technical support levels or
show signs of a potential rebound before buying.

Is This Elon Musk’s Favorite AI Stock?

Source: Image generated by OpenAI's DALL-E, with modifications made by John
Kilhefner, Senior Managing Editor

After a weak July jobs report released Friday morning, in which unemployment
unexpectedly spiked to 4.3%, Wall Street worries that the U.S. economy may
plunge into a recession.

On the face of it, those fears seem legit:

The S&P 500 dropped 1.84%. The Nasdaq Composite lost 2.43%, knocking the
tech-heavy index down more than 10% away from its recent all-time high. The Dow
Jones Industrial Average fell by 1.51%.

Investors are worried.

But such worries are overblown.

On the contrary, the stock market’s big selloff opens the door for some even
bigger buying opportunities.

To understand why, we need to first take a step back and think about how the
markets have evolved over the past two years…

SOFT LANDING HOPES FADE AS ECONOMIC DATA WEAKENS

The rally on Wall Street throughout 2023 and 2024 has been driven in large part
by hopes for a “soft landing” for the U.S. economy.

In such a soft landing, the economy gradually weakens enough to bring down
inflation (thereby allowing the Fed to cut interest rates), but not enough to
plunge the economy into a recession. The Fed subsequently cuts rates and
reinvigorates a slightly weakened economy back to “normal” health.

That’s a soft landing.

Throughout 2023 and the first half of 2024, it looked like we were going to get
that soft landing because the economic data was weakening at a so-called
“Goldilocks” pace — weakening enough to cool inflation, but not enough to plunge
us into a recession.

--------------------------------------------------------------------------------

REPLAY NOW AVAILABLE: LUKE JUST DROPPED AN AI BOMBSHELL

Luke Lango just dropped a bombshell on his readers.

He said AI could be about to send hundreds of stocks crashing and a few well
positioned stocks soaring.

This is the AI story nobody is talking about

--------------------------------------------------------------------------------

That pace of weakening, however, has worrisomely accelerated in the past few
weeks.

Namely, the July Jobs Report showed that the U.S. economy added just 114,000
jobs last month (one of its lowest paces in the past decade), while the
unemployment rate unexpectedly spiked to 4.3% (and the manner in which it is
moving higher is consistent with pre-recession behavior).

Suddenly, the markets are worried that the economy is weakening enough right now
to potentially plunge us into a recession.

Soft landing hopes are losing traction on Wall Street. Hard landing realities
are setting in…

So – are we going into a recession?

We do not believe so.

THE FED’S ’21 BULLETS’ COULD PROPEL STOCKS 25% HIGHER

Yes, the economy is weakening substantially right now. The labor market is
flashing warning signs, and the unemployment rate is spiking in a manner it
tends to only do heading into recessions.

However, the economy is still growing. The Weekly Economic Index, the best
real-time measure for U.S. economic growth, is running at normal levels around
2%, so we decidedly aren’t in a recession yet.

Any weakening the economy is suffering through right now can and will be
combated by rate cuts from the Fed in the next several months.

They have a lot of ammunition for this battle against a weakening economy.

Remember: They hiked rates 21 times in 2022 and 2023. That means they can cut
rates 21 times to help the economy regain momentum.

They have 21 bullets in their chamber, if you will.

The market thinks the Fed will use a lot of those “bullets” in the next few
months. It is currently pricing in 6 rate cuts in the next 4 Fed meetings into
January 2025, implying two jumbo-sized 50-basis-point cuts and two regular
25-basis-point cuts. We think the Fed will follow that exact path.

All of that rate-cutting should meaningfully restrengthen the economy in a
manner which allows it to not just avoid a recession, but enter a strong
expansion period, too.

We have to remember that amid all this recession talk, the AI investment boom
continues with vigor. Sure, the Big Tech companies like Meta (META), Apple
(AAPL), Amazon (AMZN), Alphabet (GOOGL), and others reported mixed quarterly
numbers over the past two weeks. But the common theme among all of them
generally was: “We’re going to keep spending more and more money on AI… a lot
more.“

The AI investment boom remains vigorous. That boom should couple with multiple
rate cuts over the next several months to restrengthen the economy and
reinvigorate the stock market.

As it relates specifically to the stock market, we believe strong earnings
growth and some valuation multiple expansion will work together to help drive
stocks higher over the next six months.

Despite weak price action, the Q2 earnings season has been objectively very
strong. About 80% of the S&P 500 has reported earnings so far. The average sales
growth rate is about 5%. The average profit growth rate is about 11%. Those are
excellent marks. We believe the combination of continued strong AI spending
trends and rate cuts should drive even higher sales and profit growth rates in
the coming quarters. We see profit growth rates accelerating towards 15% in the
coming quarters.

Meanwhile, we think rate cuts, lower Treasury yields, and soft-landing hopes
will increase investor optimism in a manner which lifts stock valuation
multiples up to their Dot Com peak levels of the late 1990s. At that point in
time, the S&P 500 was regularly trading north of 25X forward earnings. It is
currently trading around 22X forward earnings. That implies at least 10%
valuation multiple expansion over the next ~12 months.

Behind 15% profit growth and 10% valuation multiple expansion, we think stocks
can rise at least another 25% over the next year or so.

We therefore broadly continue to view the current stock market selloff as a
great buying opportunity.

THE FINAL WORD

But that great buying opportunity has not arrived just yet…

When it comes to nasty selloffs like what we’re seeing right now, it is often
best to buy the dip in tranches at critical technical supports levels and/or
when the market is starting to show signs of a potential big rebound.

Per our analysis, the market hasn’t dropped to a major technical support level
yet, nor is it showing any signs of wanting to rebound yet.

But we suspect it will and rather soon.

It is best to be ready and prepared for this rebound with a list of great stocks
to buy on the dip.

Click here to check out a few stocks on our radar right now.

On the date of publication, Luke Lango did not have (either directly or
indirectly) any positions in the securities mentioned in this article.

P.S. You can stay up to speed with Luke’s latest market analysis by reading our
Daily Notes! Check out the latest issue on your Innovation Investor or Early
Stage Investor subscriber site.

Submit

Luke Lango Editor, Hypergrowth Investing

MEET LUKE LANGO

By uncovering early investments in hypergrowth industries, Luke Lango puts you
on the ground-floor of world-changing megatrends.

Learn more about Luke

--------------------------------------------------------------------------------

Article printed from InvestorPlace Media,
https://investorplace.com/hypergrowthinvesting/2024/08/what-recession-25-major-market-rebound-ahead/.

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