Sometimes I feel like Bill Murray in the movie Groundhog Day. Every day the alarm clock rings, and I discover that the same issues are roiling the financial markets: inflation, Federal Reserve tightening, and the Russia-Ukraine war.

Depending on the news, stocks have been following a recurring pattern: they swoon, rebound, then swoon again. A distinct feeling of deja vu is setting in.

Sure enough, the major U.S. stock market indices rebounded Wednesday, after finishing lower Tuesday. In pre-market futures contracts Thursday, stocks were trading lower again.

The pessimists say we’re witnessing bouts of short-term appreciation amid a longer-term slump (i.e., a bear market rally). But you don’t have to sit on the sidelines. Below, I outline an investment strategy that currently confers opportunities for outsized gains.

Read This Story: Trouble for Equities, as Inflation Hits Home

The most powerful trend buffeting stocks is inflation, with recent data showing soaring prices.

The wholesale U.S. producer price index, released Wednesday, posted a blistering pace for March (see chart).

However, some analysts contend that inflation will start to gradually cool in the second half of 2022, as supply chain imbalances ease and backed-up shipping at the world’s ports gets cleared out.

Crude oil prices are back above $100 per barrel. Worries about energy demand due to China’s COVID lockdowns had briefly weighed on crude, but infections in hot zones such as Shanghai are on the way down. Russian President Vladimir Putin’s expansion of the carnage in Ukraine also is driving up crude prices.

U.S. Treasuries have softened, contributing to improved investor sentiment. Meanwhile, first-quarter earnings season is underway. Q1 corporate earnings as a whole are expected to post decent (but not spectacular) growth.

BlackRock (NYSE: BLK), the world’s largest asset manager and an economic bellwether, on Wednesday reported higher earnings for the quarter.

BLK reported Q1 adjusted earnings per share (EPS) of $9.52, beating the consensus estimate of $8.92. The jump represents an increase rise of 18.4% from the same quarter a year ago.

The first big earnings disappointment was JPMorgan Chase (NYSE: JPM), which missed EPS estimates and warned of economic trouble on the horizon.

JPMorgan and a slew of other banks are boosting loan reserves for bad debts and a possible consumer retreat. Provisions for loan losses don’t affect top-line growth, but they adversely affect bottom-line growth, because they’re treated like expenses on the income statement.

During the first half of 2020, which marked the worst of the pandemic-induced financial crisis, banks significantly increased their provisions for loan losses. As COVID weakened and the economy re-opened in 2021, banks slashed these loss provisions.

Now, the worm has turned again, and banks are establishing these provisions back to near pre-pandemic levels for Q1 2022 and beyond (see chart).

The proposition for value…

So how should you trade? Value stocks make sense right now. Rising interest rates benefit value stocks. Hotter inflation also is positive for value.

I typically don’t look for relative value (i.e., against other stocks in the same sector) but instead focus on absolute value.

In the stock market, today’s laggards can be tomorrow’s winners. Overvalued stocks, or even some fairly valued stocks, on the other hand, are highly susceptible to bad news and don’t always respond as expected to good news.

There’s an extra benefit of buying stock in intrinsically sound companies when they’re undervalued. Not only do you get exposure to strengthening fundamentals that propel prices higher over time, but in the short to medium term, you’ll probably enjoy an added bump from mean reversion.

I think value should beat growth this year. I consider myself a traditional value investor and also a contrarian. I’m always seeking out negative news. When others move out of an intrinsically sound stock because of a short-term hiccup, I consider that a buying opportunity and relish this type of bad-news induced volatility. You should, too.

Under the investing conditions I’ve just described, you should also consider the advice of our premium publication, Rapier’s Income Accelerator, helmed by my colleague Robert Rapier.

Robert Rapier’s trading service cranks out steady profits regardless of rising rates, hotter inflation, geopolitical turmoil, or the whims of the Federal Reserve. Anyone who adds Robert’s little-known strategy to their portfolio can enjoy more cash, more often, with less risk.

Up, down, sideways…whatever this market throws at you, Robert makes money for his followers. Click here now for details.

John Persinos is the editorial director of Investing Daily.

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