Two Strong Setups for the Coming Rally
Recent economic data reveals a troubling slowdown in job growth, prompting market analysts to reconsider their positions amid clouds of uncertainty. According to the ADP’s private sector jobs report, February saw a mere 77,000 new jobs added, significantly trailing behind January’s revised figure of 186,000 and the forecast of 148,000. Nela Richardson, ADP’s chief economist, suggested that a climate of “policy uncertainty and a slowdown in consumer spending” could be driving layoffs or hesitancy in hiring.
This uncertainty, rooted in ongoing trade tariff discussions, has cast a shadow over investor sentiment since mid-February. With tangible conversations about tariffs weighing on corporate profits and consumer spending, it’s crucial for investors to stay informed and look for opportunities amidst the turbulence.
Market Perspective on the Pullback
As of today, the S&P 500 stands approximately 5% below its high. This remains within the realm of a typical market pullback and far from the 10% threshold defining a correction. Historically, corrections occur roughly every 1.84 years, with the last one recorded in 2022. Current patterns suggest that this pullback isn’t just normal; it’s anticipated.
American Century Investments reports that past corrections (defined as a drop of 10% but not entering bear market territory) see an average drawdown of 14%, spanning an average of four months. Historically, investors who stay the course through these challenging times see recovery: Since 1974, the S&P 500 has averaged a remarkable rise of more than 8% one month after a correction’s bottom, with an impressive 24% increase one year later. As Luke Lango, editor of Innovation Investor, predicts, this trend of “two steps forward, one step back” is likely to continue through 2025.
A Different Way to Play the Gold Bull Market
While gold prices approach all-time highs, gold mining stocks find themselves underappreciated. The VanEck Gold Miners ETF (GDX) has pathetically remained stagnant despite gold prices surging almost 50% since 2022. Ideally, mining stocks typically move in tandem with gold movements, often amplifying them 2-3 times. Yet today, that correlation appears broken—an opportunity for savvy investors.
As noted by Barron’s, gold miners are trading at a staggering 44% discount to the S&P 500’s forward price-to-earnings ratio, a stark departure from the decade-long average. Factors such as rising operational costs due to inflation, increasing regulatory expenses, and questionable management decisions in mining companies have handicapped this sector. Despite these headwinds, valuations remain compelling for investors willing to look beyond superficial market trends. Companies such as Agnico Eagle Mines (AEM), Alamos Gold (AGI), or the aforementioned VanEck Gold Miners ETF (GDX) are worth investigating for potential growth.
Are You Ready to Be Greedy?
Positioning itself amid market fear, CNN’s Fear & Greed Index currently reflects Extreme Fear. While this may induce hesitation in many, it’s imperative to remember the sage advice offered by Warren Buffett: be greedy when others are fearful. Data from TrendSpider highlights that purchasing QQQ (tracking the Nasdaq 100) when it sits 10% below its 20-week high historically leads to an average of 13.5% returns over six months, boasting an 82% win rate.
For those seeking more aggressive strategies, recommendations from Eric Fry, editor of Leverage, spotlight a gold mining stock trading at just six times EBITDA—a remarkable 40% discount to the Philadelphia Gold and Silver Index (XAU). The time to act is now, as opportunities abound for those willing to weather some temporary market unpredictability.
Final Thoughts
Market pullbacks are an inherent aspect of investing, and history repeatedly indicates they present golden opportunities for strategic buying. As billionaire investor Rob Arnott succinctly puts it: “In investing, what is comfortable is rarely profitable.” In this period of correction, it’s vital to embrace the volatility, as J.P. Morgan reminds us: “In bear markets, stocks return to their rightful owners.” Don’t shy away from today’s dip—this pullback signals ripe conditions for disciplined investors ready to seize what may very well become an incredible opportunity for growth.
