The Weekend Edition is pulled from the daily Stansberry Digest.
He speaks with such a calm authority...
That's how Dan Ferris described Wall Street legend Marc Chaikin, the founder of our corporate affiliate Chaikin Analytics, after we recently interviewed him for the Stansberry Investor Hour podcast.
I first met Marc in 2021. And I've always left a conversation with him learning something new about the markets.
Marc got his start on Wall Street in the 1960s. So it's fair to say he has seen it all. He even invented investing tools that some of finance's biggest names have used over the decades... You can find them on every Bloomberg terminal around the world.
Marc was practicing technical analysis decades before it became popular. He was also analyzing money flows to forecast future price action long before most people... and even developed the industry-standard Chaikin Money Flow indicator.
After decades on Wall Street, though, Marc has shifted toward helping individual investors...
Marc was able to "retire" early in 1999 in Connecticut. But a decade later, after watching his wife's portfolio (and thousands of others) struggle through the financial crisis of 2008 and 2009, he decided to go back to work... this time, for the "little guy."
In 2011, Marc started his own company, Chaikin Analytics, and began sharing his Wall Street expertise with everyday investors.
Among other tools, Marc developed the Power Gauge system. It's based on a 20-factor model that assigns a simple rating to thousands of stocks and exchange-traded funds ("ETFs"). The platform is intuitive, easy to use, and fascinating.
Earlier this week, Marc shared his latest market outlook with the public... on everything from artificial intelligence ("AI") to the presidential election in November and how you can find stocks worth buying today.
In short, Marc says investors should be looking past AI darling Nvidia (NVDA) and other headliners...
Instead, it's time to get interested in the other, smaller companies that could ride this part of the AI boom. That's why he has been putting his system to work on identifying those "hidden gem" opportunities.
If you missed the free event, don't worry... You can still watch it online right here.
But first, I want to share excerpts of our recent interview with Marc, which you can find in full on the Stansberry Research YouTube page or InvestorHour.com.
In this portion of the interview, Marc describes the presidential-election cycle's historical correlation with stock market performance... shares his take on the "narrowness" of current market leadership... and highlights the sectors he's eyeing right now.
So without further ado, here's an excerpt from that interview...
Dan: Let us begin where we left off in November 2023. The market has done pretty well since then, and you've been bullish, haven't you?
Marc: I have remained bullish for the last six or seven months, and part of the reason is the election-year cycle, which has really been like a road map for us for the last three years. What it tells us is that in a presidential-election year, the market finishes strong.
In 16 out of the last 18 presidential-election years, the market has been up. And there's a sweet spot in that cycle, which is the June-to-August time frame...
We're entering that sweet spot right now. Even more to the point, from June 1 through the end of the year, the market is typically up in a presidential-election year by an average of about 10%...
The first two weeks of July the best single two-week period going all the way back to 1928 in the stock market, year in and year out... regardless of an election year or anything else... You can call it seasonality, but I prefer to call it the presidential cycle that's supporting a bullish outlook.
Dan: If it's bullish because it's a presidential-election year, what do you think about a surprise? Elections can surprise people. They sure did in 2016. How do you feel about that prospect?
Marc: The market is typically very nervous in the four-to-six weeks leading up to the election. So in 2016, the market was actually down for about a month heading into the election. And then after Trump beat Clinton, the market took off again.
So, yes, there's always the possibility of a surprise, particularly in this overheated political climate. But that's why it's really the June-to-August period , then a bit of a pause and preparing for a potential surprise, and then finishing the year strong. A surprise is possible, but it certainly would be a buying opportunity. It's not something that spooks me.
Next, Dan wonders how investors should ride the presidential-election cycle...
Dan: Does it make sense to look at specific sectors in an election year?
Marc: I prefer to look at more of a real-time snapshot of the sectors because they pretty much tell us everything we need to know. And right now, even though the headlines are dominated by tech and obviously AI and the software that's going to benefit from these AI chips that Nvidia is making, you also have financials, utilities, health care strong.
The market is, in a sense, broadening. It's just not garnering the type of headline that you would expect. For instance, in the insurance industry, there are lots of attractive stocks based on the Chaikin Power Gauge rating.
Corey: The track record of the presidential-election cycle in the markets is there. My question is, why does this tend to happen? Is it the promise of politicians, no matter who they are, to boost the economy heading into November, or something else?
Marc: In this case, it's the fact that the has stopped raising interest rates – and whether they cut in the fourth quarter or not is still to be determined – and strong corporate earnings.
You've also got this AI boom, which is driving a whole sector of the market that in the cap-weighted ETFs like SPY and QQQ , they're dominant.
And there's an awful lot of money flowing into the market, over $96 billion so far in 2024. A lot of that goes into these passive funds that are capitalization-weighted and they've got to buy Nvidia, Apple, and Microsoft in proportion to their weightings in the ETFs.
But the bottom line is, earnings are going up, profit margins are improving, and inflation is going down despite the headlines that you're seeing about stubbornness and so forth. You've got a number of very positive factors driving the economy.
Dan then switches gears, asking if this market is too concentrated...
Dan: I see a lot of commentary about the incredibly narrow breadth and leadership in this market. It has never been like this. The market has never been so concentrated. That doesn't bother you?
Marc: No, it's just an oddity. I just read a study today that showed there are five instances since 1990 when we had this kind of breadth, although the S&P 500 and are much more overbought. And in each of those five instances, the market was higher six and 12 months later.
But I actually think there's going to be a broadening out, and that's part of what we're very excited about... because I think stocks like Nvidia, Google, Microsoft, Oracle, and now Adobe, they're all riding the AI wave... But I think it's going to broaden out. And that's what we're really looking for – the sort of undiscovered stocks that aren't in the headlines right now.
Dan: What tells you that? Is that a Power Gauge reading or something else?
Marc: It's something else. There are a series of momentum patterns that triggered in December 2023 and January 2024.
The most obvious one is the percentage of stocks in the S&P Composite 1500 Index, so that's large-cap, mid-cap, and small-cap – 90% of those stocks in December were above their 50-day average. And every time that has happened, the market has been higher six and 12 months later and mid-caps have outperformed large caps.
That was what clued me in. And then you had the mid-cap index making a new high after failing to do so for a year. A lot of things are falling into place that tell me this market is broadening out.
Dan and Marc also discussed the stocks Marc is watching now (and how he finds them)...
Dan: You already named some sectors... utilities... health care. Do you focus your bets on those?
Marc: We'll be looking for the strongest stocks in the industry groups. Utilities is a really special case. Normally, this is a defensive sector, and these stocks tend to go opposite to the tech sector, but it's all about power. AI chips and AI data centers require power. There are a lot of alternative-energy companies in the utility sector that are generating power and are capable of doing that for AI data centers.
It's sort of a different ballgame with utilities... We're just very opportunistic. We want to find the strongest stocks based on the Power Gauge in the strongest sectors and industry groups.
Dan: Throw in consumer staples and those are three sectors normally thought of as defensive...
Marc: Health care has always been a problem for me and an opportunity – because it was defensive, but there's really a lot of growth opportunity in health care. Just look at Eli Lilly. That is not a defensive stock or a defensive sector anymore.
There are still some software stocks in the mid-cap sector that haven't gained much public awareness. I'm talking about stocks with market caps of $2 to $10 billion.
Dan: It has been a mega-cap world for the past several years, hasn't it?
Marc: It has been indeed. Think about it... What is a mid-cap stock? Let's just look at the S&P MidCap 400 Index. These are stocks that are on the verge of being added to the S&P 500... They're your next wave or next generation of stocks that are going to be on people's radar screens. But there's another reason that I like mid-caps.
Mid-cap companies are in a unique position where they can implement AI and boost profit margins, and that's what the next five years are going to be all about: increased profit margins across the board.
If you're interested in hearing more from Marc, he recently sat down to highlight a little-known investing strategy...
In his free presentation, he shared more about how he's finding "hidden gems" in this market that he believes are poised to boom higher... and soon.
Marc also explained a straightforward investing approach that brings him back to his early days on Wall Street – and why it's important now. The strategy could beat the S&P 500 by fourfold over the next year, based on a signal that has been 100% accurate since 1943.
If you missed his discussion, it's not too late to check it out. You can watch a replay of the event right here.
Good investing,
Corey McLaughlin
Editor's note: Marc has spotted a momentous financial shift in a certain part of the market. As he explained in his presentation this week, it will likely determine some of the biggest stocks of the next decade. What's more, it could offer a chance at life-changing gains for those who are prepared for what's coming... and the rise of the market's next leaders. Click here to learn the details.
