U.S. Stock Market Amid Terminal Interest Rates and Earnings Downward Revision

  • During previous recessionary periods rate hikes have been halted before the earnings begin to decline while the S&P 500 bottoms after the rate cuts begin and two to four quarters before the troughs in EPS growth.
  • Since the fed funds target rates exceeded the neutral rate (September 2022), stocks with high interest coverage, higher growth in cash flows, and lower valuation have outperformed the S&P 500.
  • Stocks with PE ratio below 25x, interest coverage in the top 20 percentile, and cash flow growth in excess of 15% in the preceding quarter beat the index by 1,340 bps over the previous six months. The outperformance in terms of total returns was more significant for stocks filtered for our superior O’Neil Ratings (as at the beginning of the period of assessment).
  • During Fed-induced recessions (2000-01 & 2007-08) and as the market approaches terminal rates, high-growth sectors like Software & Technology Services, Technology Hardware & Semiconductors face early and more intense sell-off compared with sectors like insurance, utilities, oil & gas, and banking. However, during the periods of terminal rates, they record the sharpest recoveries.
  • Stocks of interest based on high interest coverage, strong cash flow growth and reasonable valuation: Axcelis Technologies (ACLS), ON Semiconductor (ON), Reliance Steel & Aluminum (RS), Tractor Supply Co. (TSCO), Deckers Outdoor Corp. (DECK).

O’Neil Global Cryptocurrency Weekly

Quant – $1.74B market cap (ranked #38 by market cap)
With the goal of connecting blockchains and networks on a global scale, without compromising the efficiency and interoperability of the network, Quant was launched in June 2018. Quant was the first project to solve the interoperability problem and the first OS to be built for blockchains. Gilbert Verdian, one of the founders of the Quant network, had the idea for the blockchain project while he was serving in the healthcare sector. He identified the importance of interoperability in ensuring that patients registered on different platforms are covered.