After rallying 17% higher in 2023, volatility now rules the S&P 500. Sharp swings higher and lower has the popular benchmark sitting below its August highs. Still, the index remains 25% above last year’s late September low point.
Will this be the charge taking the S&P to a new high, a sign that we’re officially in a new bull market? Or is it a dead-cat bounce — a false run-up that only disappoints investors as the index crashes to new lows?
History suggests the market will reach a new record top. The end of a Federal Reserve rate hike schedule more often than not causes the index to run ahead. From 1974 on, Charles Schwab (NYSE:SCHW) found the market rose an average of 9.8% in the 12 months that followed the completion of a tight money cycle. The Fed signaled its rate hikes are over.
The brokerage and banking service urges caution, though. Schwab notes that going back as far as 1929, it’s clear there is no typical response by the market. The S&P 500 only rose by 1.8% on average in the year after the Fed stopped hiking interest rates over that time frame.
Yet, you could argue that today’s stock market is radically different from that of the 1930s through the 1960s. Performance from the 1970s onward is the better yardstick to measure by.
The following three stocks are ones to buy just in case what we’re seeing is indeed a dead-cat bounce.
American Eagle Outfitters (AEO)
Clothing chain American Eagle Outfitters (NYSE:AEO) is not the kind of stock you would normally see recommended for a market crash. Consumers worried about putting food on the table are more likely to cut back on non-essential purchases. Apparel would be one of them.
American Eagle is the exception to the rule. It moved away more than a decade ago from selling just logo-heavy clothes. In its place, the company sells apparel more attuned to consumer tastes. As a result, the retailer’s performance is resilient. Its focus on its Aerie lingerie brand was a stroke of genius. The clothing line is zeroing in on American Eagle’s stated goal of turning Aerie into a $2 billion-a-year brand.
Its performance during the pandemic was exemplary. When stores shut down in 2020, Aerie still generated $990 million in annual sales, 24% more than the year before. Then, when the hangover of post-stimulus check revenge shopping hit other retailers hard, Aerie’s revenue surged 39% higher to $1.38 billion.
Aerie is still going strong, with revenue 6% higher so far in 2023. It’s also very profitable. Operating margins doubled in the first six months of the year to 15.3% as American Eagle did not feel the need to discount the merchandise to move products anymore.
If the stock market tumbles again — or even if it doesn’t — American Eagle should be on your list of stocks to buy.
Chip giant Intel (NASDAQ:INTC) was given up for dead by the market. It lost its momentum and was playing second fiddle to Taiwan Semiconductor Manufacturing (NYSE:TSM) in chip manufacturing. It was also behind Advanced Micro Devices (NASDAQ:AMD) for PCs and servers. And let’s not forget the PC market itself is declining. Shipments tumbled almost 17% in the first half of the year.
Intel surprised the naysayers. It embarked on a plan to regain market share and return to dominance. Talk is cheap, but Intel’s roadmap is working. By the end of next year, the chipmaker’s final roadmap step of releasing its Intel 18A process node should put it back in front of TSM in chip manufacturing. The node is the most advanced one on Intel’s five-nodes-in-four-years roadmap.
Intel originally planned to release the node in 2025 but moved it up to next year as its cost-cutting plans made the semiconductor star leaner and more nimble.
And its foundry business just won a huge mystery customer. Chief Executive Officer (CEO) Pat Gelsinger told the Deutsche Bank (NYSE:DB) 2023 Technology Conference that Intel just received a large prepay for 18A capacity. Rumors suggest the customer could be Arm chips or even Apple (NASDAQ:AAPL).
Whoever it is, it’s a big vote of confidence. It shows this industry titan is still a force to be reckoned with.
Novo Nordisk (NVO)
The U.S. Centers for Disease Control says obesity is at epidemic levels. Nearly 42% of all American adults are overweight. The estimated annual cost of obesity in 2019 was pegged at $173 billion.
Novo Nordisk (NYSE:NVO) is capitalizing on the situation like few companies ever have. Forget exercise and diet. The biotech managed to capture weight loss in a pill not once but twice. Its weight-loss drugs Ozempic and Wegovy are massive hits and only growing. Global sales were up nearly 50% in the second quarter.
Novo Nordisk is the dominant provider of the diabetes and obesity therapies known as glycogen-like peptide-1 (GLP-1). The company has a 65% share of the market with Ozempic being the No.1 therapy with a 44% share. The biotech relaunched Wegovy in the U.S. in January, helping to drive sales higher.
Obesity treatments in pill form are the holy grail for overweight people who want an easy solution — I’m looking in the mirror. The success of Ozempic and Wegovy is so dramatic it is impacting the bariatric surgical procedures performed by Intuitive Surgical (NASDAQ:ISRG). The robotic surgery device maker reported elective procedures for weight loss slowed significantly this year.
Although the weight typically returns once patients stop using the drug, it is a massive market opportunity for Novo Nordisk regardless of the economic climate.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.