The Most Crucial Week Of Wall Street’s Year Has Come

Sometimes investors like feeling a little frightened. The more scary stories we share, the less opportunity for “irrational exuberance” to spiral out of control.

We’ve all trained ourselves to distrust a rally that runs too far from the fundamentals. It’s why we talk so much about stretched valuations, unsustainable interest rates and statistically challenging seasons.

After all, we want to be sure we can trust the returns the market gives us. When the gains are too easy, they tend to evaporate once the mood swings . . . we all want something more substantial.

They’re all scary stories. When they don’t come true, the bulls find that the walls of worry only existed in our heads.

But sometimes the scary season is real. September is often a weak month for stocks and we’ve survived that with little more than a scratch. So much for the fear factor there!

October, on the other hand, is usually pretty good in a non-election year, despite the month’s reputation. The problem is that when the market gets bumpy this time of year, the shocks stack up fast.

And this year is no different. The coming week will be the test of whether Wall Street has a relatively smooth ride to the end of the year . . . or indulges a few real nightmares before the fever breaks.

Apple On Deck

Think back to 2018. The year began well enough and by October the S&P 500 was up a healthy 8% from where it started.

Earnings were on track to grow at the fastest rate since 2011. Multiples were actually on the low side of average.

But there was a trillion-dollar problem in the form of mighty Apple (AAPL) confessing that iPhone sales just weren’t ramping up the way they had in previous years. The rest of the Big Tech group wasn’t doing great either.

Fear fed on itself. By Christmas, all of the market’s YTD gains have vanished and the S&P 500 was down nearly 20% from its peak . . . practically bear market territory.

What went so terribly wrong? Rising interest rates and the looming trade war were not constructive, but the trigger really amounted to a failure of leadership.

AAPL wasn’t in a position to support the rest of the market any longer. Not a lot of other stocks stepped up. Before we knew it, Treasury officials were holding emergency conference calls with the banks in order to prevent a 2008-style meltdown.

And yes, Apple reports its latest quarter next Thursday night. I don’t think the numbers will be bad in themselves, but the numbers weren’t terrible in 2018 either.

They just didn’t inspire a lot of confidence. This year, CEO Tim Cook has already warned that he’s facing supply chain headaches . . . as have many other companies. We don’t know yet how serious they are.

If mighty Apple can’t defy the post-pandemic tide, the rest of the market could be in serious trouble.

Everything depends on those numbers and Tim Cook’s attitude. If he can sell a rosy outlook, the market can easily cheer with relief, taking us through the end of the year on a relative high note.

Otherwise, there isn’t a lot to cheer about until the fear factors run their course. Interest rates are going in the wrong direction. Earnings growth is slowing as comparisons get tough and inflation starts chewing on margins.

Beyond The Wall Of Worry

I’m not worried about the long haul. Every scary movie Wall Street has concocted for itself has ultimately delivered a happy ending.

We just have to sit through the show in the meantime. For now, 1.5% Treasury yields are practically nostalgic. I doubt we’ll see them again before the next big crisis emerges.

Now, apparently, 1.7% yields are the new ceiling hanging over the market mood. Sooner or later, one way or another, there will be a reckoning.

The government has printed trillions of dollars to fuel stimulus and keep the credit markets lubricated. That debt needs to be paid off eventually.

We don’t know where bond yields need to go before inflation recedes again. We don’t even know if the Fed has the willpower and the tools to make it happen.

But I know that Corporate America can innovate out of any problem. Supply chains will rebuild, stronger and more nimble than ever. Profitability won’t vanish.

The mass layoffs we saw in 2008 are unlikely. Everyone is watching, from Main Street to Wall Street and beyond. Nobody wants to sit through that scary movie again.

And in the meantime, we stick to our strategy. That can mean high-impact stocks with what it takes to power through the storms.

It can mean options. We’ve been doing extremely well on both calls and puts. That’s not exactly what you’d expect in a world that’s all terrible . . . or all great.

We’re realistic and opportunistic. That’s what it takes to keep the real money flowing.

Cannabis Corner: Shift Out Of The Stall Into Racing Gear 

The entire point of investing in cannabis stocks is that you’re getting in on the ground floor of an industry that didn’t legally exist a decade ago.

In theory, these companies can take you from zero to the stratosphere. If you got into the giants close to the zero stage, you might be feeling pretty good right now.

But if you’re not already in the giants, never forget that the first billion dollars is always the hardest . . . and the most exhilarating.

The next $1 billion in market cap Aurora or Canopy or Tilray gains now only moves the shareholder needle 50% at most. That’s not a transformational story.

These are just like other stocks now. They’ve built their businesses and we can evaluate them as though they were paint makers or cereal companies or hardware stores.

On those terms, the story isn’t necessarily exhilarating. The giants are still struggling to bring in more money than they spend. And growth rates aren’t exactly exponential.

If you want the classic cannabis story, stick to the growth stocks. OrganiGram is one of the better ones, with sales rising about 13% from last year.

And it’s not even a $1 billion stock yet. Remember, little companies almost never buy out big ones . . . the deals and the premiums go the other way.

Little stocks like OrganiGram get bought out by giants that have more cash than organic avenues for growth. Shareholders cheer. And then if there’s a stock component, they end up owning a piece of the giant anyway.

Don’t cut straight to the end. Start small and let the giants come to you.

GreenTech Opportunities: My Favorite Green Stock

This one will shock you. Over and over this week, people complained to me about gas prices. It’s really getting gruesome out there.

And as expert green investors know, when fossil fuel prices surge, renewable alternatives usually get a boost soon after.

When you’re paying $4 a gallon, a Tesla looks awfully attractive.

But I’m not a fan of Tesla right now. There’s too much going on in the numbers and while a lot of people love Elon Musk, he’s been a little too quiet to rally his fans.

Instead, my favorite electric vehicle stock right now is actually good old Ford (F).

A lot of buzz around the Lightning trucks. Power to spare, enough to impress conventional truck drivers.

And as green as it gets. I’m watching sales with great interest. Tesla has largely saturated its easy market, but Ford Nation has barely even started looking beyond the gas shock.