Zacks Investment Ideas feature highlights: Apple, Nvidia, Meta Platforms and Nasdaq 100 ETF

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For Immediate Release

Chicago, IL – July 10, 2024 – Today, Zacks Investment Ideas feature highlights Apple AAPL, Nvidia NVDA, Meta Platforms META and Nasdaq 100 ETF QQQ.

U.S. Stocks: Does a Summer Market Correction Loom?

According to nearly a century of data from Charlie Bilello of Creative Planning (@charliebilello), as of Friday the S&P 500 Index is off to its 12th best start to a year and the best start to a presidential election year in history.

The bullish price action in 2024 once again illustrates how the U.S. stock market is the master manipulator. Despite a regional banking scare, two new wars, and inflation fears and recession fears, stocks have climbed the proverbial Wall of Worry and have been driven higher by scorching hot growth in the A.I. industry and mega-cap tech juggernauts like Apple, Nvidia and Meta Platforms.

The question now for investors is, “How much longer will the equity bull market last?”

Because investing is heavily dependent on time frame, the answer requires some nuance. For example, if you are a long-term investor who is allocating a portion of your paycheck to the S&P 500 Index, the best course of action is to continue to dollar-cost average into stocks.

History suggests that when the S&P 500 breaks out to new highs after such a hot start, the momentum continues and the bull market has more legs. Conversely, for active traders, the risk-reward at these levels is not as favorable as it was before.

Does a Late Summer Stock Market Correction Loom?

This year is another example of how predicting tops or corrections in a bull market can be futile. That said, weighing the risks and rewards using data is a worthwhile endeavor. If the reward to risk is not as favorable as before, investors may want to save some cash to buy a potential pullback in equities. Below are five reasons a late summer pullback may be in store for U.S. equities, including:

1. Historical Stock Market Seasonality Trends

Seasonality trends suggest that the Nasdaq tends to rally until mid-July, consolidate its gains until late October, then rally into year-end. Thus far, the Nasdaq is following this pattern perfectly.

2. NAAIM Exposure Index

The NAAIM Exposure Index represents active investors’ average exposure to U.S. equity markets. Currently, NAAIM is flashing a 103 reading, meaning that the average active investor is fully invested and on margin. The past three times this has occurred, it led to a short-to-intermediate-term correction in equities.

3. Slim Leadership

Mega-cap stocks have been so strong that they have dragged up the major equity indices. However, the market participation data is currently becoming too extreme to ignore. The percentage of S&P 500 stocks outperforming the S&P 500 Index over a rolling 21-day period dropped to the lowest in history (data via Dean Christians (@deanchristians).

4. Distance from Moving Average & Big Round Numbers

The Nasdaq 100 ETF is more than 8% above its 50-day moving average. Experience tells me that such a stretched level is unlikely to be sustainable and will lead to a correction or at least some sideways action. Furthermore, QQQ is approaching the psychologically significant big round number of $500.

5. Election Uncertainty

Pre-election trading leads to uncertainty, which can lead to volatility in an election year. Currently, the U.S. is the most divided it has been in recent memory. After a poor debate performance, rumors are swirling that President Biden may be replaced on the Democratic ticket. Each day, it seems like the polls and, more importantly, the Vegas odds of each candidate are fluctuating dramatically. The election uncertainty will likely lead to some violent trading in the coming months.

Bottom Line

Stocks are off to one of their best starts in history in 2024. However, several data points suggest that a short-term correction may loom.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Apple Inc. (AAPL) : Free Stock Analysis Report

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