Instead of hanging on every alarmist (and often misleading) chyron alert on CNBC, you should methodically create a “hope to buy soon” list of stocks, correlated to such late-stage economic cycle industries as energy, utilities, and health care.

While most investors dislike down days for the stock market, I’m happy to see some red on the names that I’ve been eager to buy at lower prices.

The S&P 500’s forward 12-month price-to-earnings (P/E) ratio currently hovers at 19.4, closer to the five-year average of 18.6. Rather than burst in spectacular fashion, the asset bubble has incrementally released air.

To be sure, the markets have been volatile. Skilled options traders are adept at taking advantage of volatility, but sharp moves up and down tend to unnerve the average investor. The main U.S. stock market indices bounced between gains and losses Tuesday to finally close higher, as follows: the Dow Jones Industrial Average +0.80%; the S&P 500 +0.95%; the NASDAQ +0.94%; and the Russell 2000 +1.57%.

In pre-market futures contracts Wednesday, the indices were trading lower in the wake of a pessimistic economic report. The World Bank’s Global Economic Prospects report, released Tuesday, projects that world growth will slow to 2.9% this year from 5.7% in 2021. The outlook is bleaker than the one delivered by the bank six months ago, largely due to Russia’s invasion of Ukraine.

It also doesn’t help that the average price of gasoline in the U.S. is $4.95. That’s bad for consumers, and it’s certainly bad for the incumbent Democratic party as the midterm elections loom. Any presidential administration, regardless of party, has limited tools to push down gas prices.

Wall Street is getting more pessimistic about the second quarter, as inflation continues to rage and there’s ostensibly no end in sight to the Russia-Ukraine carnage. Corporate profit margins are getting hammered by higher input and operating costs.

But longer term, the analyst view is more bullish, on the assumption that these challenges will eventually get sorted out by the end of the year.

During the first two months of Q2 2022, the analyst consensus reduced earnings per share (EPS) estimates for S&P 500 companies for the quarter, according to FactSet.

The Q2 bottom-up EPS estimate was reduced by 1.3% (to $55.36 from $56.06) during this period. “Bottom up” is an aggregation of the median EPS estimates for Q2 for all the companies in the index (see chart):

Seven of the 11 S&P 500 sectors witnessed a decrease in their bottom-up EPS estimate for Q2 2022 from March 31 to May 31, led by consumer discretionary (-15.8%) and communication services (-7.3%) sectors.

Four sectors posted an increase in their bottom-up EPS estimate for Q2 2022 during this period, led by energy (+29.4%) and materials (+8.7%). As energy prices soar, energy has been the top performing sector this year.

The above chart also serves as a reminder, if any were needed, of how dire the earnings picture looked during the nadir of the pandemic in Q2 2020.

It’s telling that as analysts cut EPS projections in aggregate for Q2 2022, at the same time they boosted EPS estimates in aggregate for the next two quarters. The bottom-up EPS estimate for Q3 was raised by 0.4% (to $59.52 from $59.26) from March 31 to May 31, while the bottom-up EPS estimate for Q4 was hiked by 0.2% (to $60.78 from $60.74) during this same period.

There’s mounting evidence that U.S. equity markets have bottomed and are positioned to reverse losses in the second half of 2022. We’re also seeing signs that the economy can avoid a recession.

Watch This Video: Stock Market Rebound Ahead?

Inflation remains uncomfortably hot, but the latest data suggest that the rate of inflation is slowing. We’ll get a clearer picture of inflation on Friday, when the government releases the consumer price index (CPI) data for May. The consensus forecast is for a year-over-year increase in the CPI of about 7%, which would still be high but a deceleration from April’s 8.3%.

This week, bellwether retailer Target (NYSE: TGT) reduced operating profit guidance for Q2, sending its shares tumbling (yet again). Target announced aggressive actions to reduce costs, including markdowns and order cancellations.

But let’s look at the positives. In the U.S., the jobs market remains strong, and by extension, so does consumer spending. Retailers are getting squeezed on operating costs, but consumers remain in the mood to spend. Households and corporations are sitting on hefty cash hoards. The global growth engine of China is gearing up again, in the wake of Beijing’s recent reduction of interest rates and removal of COVID lockdowns.

If Target and other beleaguered companies readjust their inventories and inflation starts to ease, conditions could be in place for a big stock market rebound as we get closer to 2023.

The inflation-beating cash machine…

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John Persinos is the editorial director of Investing Daily.

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