Stocks hit a new record high again on Wednesday, marking the 70th — yes, the 70th — record-high close for the S&P 500 this year.
Needless to say, it’s been an incredible year for investors and traders. Companies across many sectors have produced huge returns for market players.
As of December 30, the S&P 500 is up over 28%, the Dow Jones Industrial Average is up 20%, and the Nasdaq Composite is up almost 23%.
Simply put, beating the major averages this year was no easy feat. In fact, a recent CNBC talking head noted on the radio yesterday that over 90% of money managers failed to beat the benchmark returns in 2021. In contrast, every analyst here at Energy and Capital has beaten the pants off the major indexes this year with their model portfolios. The reason for this is simple: Many money managers, both large and small, failed to react to fundamental changes in the market that many of the experts actually predicted would occur in 2021. This ability to read the tea leaves and see trends before they take hold is exactly what separates the financial experts here at Energy and Capital from the talking heads you see on TV.
As a result, we nailed numerous 2021 trends. We cashed in huge on oil’s surge. We capitalized on the metaverse and spatial computing. We nailed the inflation trade as well as the truth about America’s so-called “Great Reopening” post-pandemic, and the list goes on and on.
But hindsight is 20/20. This year’s gains are already old news, and it’s time we turn our focus to the most important trends of 2022. As such, I have three very specific, very bold predictions that, if you hitch your wagon to them, I believe they will make you a ton of cash in 2022.
The Market Will Flash Crash in Mid-February
A bull market cannot run indefinitely. The Federal Reserve cannot print money indefinitely. At some point, all the ways we’re artificially propping up the economy will disappear. With the Fed planning three rate hikes next year, bad market breadth in December, and a clear and distinct trend into value stocks, there’s no doubt in my mind that a big correction is coming. The reason is similar to the setup that led to the crash of December 2018.
Back then, news that a hawkish Fed was planning to raise rates flooded the headlines and roiled markets. This sent stocks spiraling downward. It was the worst December for stocks since 1931. I expect the same reaction when Fed Chairman Jerome Powell announces the first rate hike for next year. The Street is betting this will come sometime in Q1, which is why, by mid-February, I expect an announcement on a rate hike and a flash crash in stocks to follow. My advice is to either plan an exit strategy for your riskier positions while holding onto your value plays, or calculate a plan to dollar-cost average down on your more expensive stocks and ride out the carnage by buying the dips.
Now for our next prediction…
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A Flash Crash and Rising Rates for Stocks Means Buy Crypto
Yes, I’m a crypto bull. The logic behind each bull case for tokens like Bitcoin (BTC) and Ethereum (ETH) is hard to argue, in my opinion. And the mistake crypto bears make is conflating all the cryptos into one basket. In short, the value of a crypto is defined by its utility. But many cryptos are best used for specific yet different things. Some cryptos, like Bitcoin, are proving to be great stores of wealth. I liken Bitcoin to gold, except BTC offers insanely better growth. And defensively speaking, if you’re preserving wealth, you’re more likely looking at five-, 10-, and 15-year returns. When you compare gold with Bitcoin in this regard, BTC is the better vehicle, as the chart below shows.
The better investment and method of preserving your wealth against inflation and rising interest rates is clearly Bitcoin. This isn’t going to change. And these six cryptos could be the biggest gainers in 2022.
The “F” Word Will Be Uber-Important When Stock-Picking this Year
If I could sum up 2021’s market action in a single sentence, it would be “Fundamentals be damned.”
2021 was all about growth stocks — stocks with super-high valuations and lots of innovative promises but little to nothing in terms of positive cash flow and profits. In an environment where money printing is out of control, interest rates are low, and demand for innovation is high, highly speculative stocks are the ones you want to own. But in an environment where rates are going to rise and the fiscal stimulus has run dry, companies with strong fundamentals are the companies that will shine.
We’re going to have to start churning through earnings reports, 8-K filings, revenue, cash burn, going concerns, EBITDA, and other fundamental indicators a lot more. This also means that some of the sexier names like Lucid Group (NASDAQ: LCID) or Rivian Automotive (NASDAQ: RIVN) — the supposed next Tesla — are going to suffer, along with their holders. But turning a profit, having cash on hand to further fund operations for the long term, and positive EBITDA are the the things I’m looking for in my next stock buys. A company like Rivian has none of that. I’d much rather buy more Microsoft Inc. (NASDAQ: MSFT) or even solid defensive stocks like Pfizer (NYSE: PFE) or Caterpillar (NYSE: CAT) for the dividends than a Rivian or Coinbase Inc. (NASDAQ: COIN) to start off 2022.
I highly recommend you reevaluate your portfolio and weightings and do the same.
Have a happy new year.
To your wealth,
Sean McCloskey
Editor, Energy and Capital
@TheRL_McCloskey on TwitterAfter spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.
