I turn now to the timeless wisdom of Louis Winthorpe III: “Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem.”

That dialogue is from Trading Places (1983). The movie is a comedy, but it also serves as a surprisingly effective primer on commodities trading.

Markets this year suffered their worst first-half performance in decades. But let the other guy be afraid. You should see the downturn as an opportunity. Amid the tug-of-war between good and bad news, you can still find growth opportunities. I highlight an appealing industry, below.

Watch This Video: Has The Stock Market Stabilized?

The bear market low so far was reached on June 16, with the S&P 500 down 23.6% from its January 3 peak. Since June 16, the S&P 500 is up nearly 5%.

We enjoyed a powerful rally last Friday, but Monday saw losses after choppy action. The major U.S. stock market indices soared after the opening bell but then fell into the red when Apple (NSDQ: AAPL) announced that it would slow hiring and spending next year.

The indices Monday performed as follows: the Dow Jones Industrial Average -0.69%; the S&P 500 -0.84%; the tech-heavy NASDAQ -0.81%; and the Russell 2000 -0.34%.

In pre-market futures contracts Tuesday, stocks were trading firmly in the green again. Investors are bracing for a flurry of new employment and housing data, due out this week.

Is growth back in vogue?

Apple’s downbeat news threw some cold water on the technology sector and broader market, but over the past month, investors have been bargain hunting among beaten-down quality growth stocks, especially in the tech space.

Over the past month, the iShares S&P 500 Growth ETF (IVW), the iShares S&P 500 Value ETF (IVE), and the SPDR S&P 500 ETF Trust (SPY) have generated year-to-date daily total returns of +3.95%, -0.57%, and +1.59%, respectively (all figures as of market close July 18).

Some analysts are predicting an imminent recession, but robust jobs growth and strong retail sales belie those concerns.

Corporate earnings are hanging tough as well, although they’ve decelerated. So far during the S&P 500’s second quarter earnings season, the number and magnitude of positive earnings and revenue surprises have been smaller than average.

As of this writing, about 7% of S&P 500 companies have reported actual results for Q2 2022. Among these companies, 60% have reported actual earnings above estimates, which is below the five-year average of 77%, according to FactSet. In aggregate, companies are reporting earnings that are 2.0% above estimates, which is below the five-year average of 8.8% (see chart).

To date, the blended earnings growth rate for the second quarter is 4.2%. “Blended” combines actual results for companies that have reported and estimated results for companies that have yet to report.

A mixed bag…

The salient earnings story so far has come from the financials sector. Operating results from the big banks have been a mixed bag.

JPMorgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS), and Wells Fargo (NYSE: WFC) missed expectations, whereas Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), and Bank of America (NYSE: BAC) beat them. Overall, the operating results of these bellwether financial institutions aren’t pointing to serious economic problems down the road.

There’s a growing sense on Wall Street that the worst might be behind us. If you look closely at the inflation numbers, you can see signs that maybe (just maybe) inflation has peaked.

Commodities prices have been sharply falling since June. The consumer price index (CPI) durable goods inflation rate peaked at 18.7% year-over-year during February and fell to 8.4% during June. Supply chain woes are getting resolved and delivery times are improving.

Regardless, volatility is likely to persist at least over the short term, as investors await the Federal Reserve’s next decision.

Keep an eye on profit margins. The blended net profit margin for the S&P 500 for Q2 2022 is 12.4%. If that percentage turns out to be the actual net profit margin for Q2, it will represent the second consecutive quarter in which the net profit margin for the index has declined year-over-year.

Two sectors are expected to report a year-over-year increase in their net profit margins in Q2 2022 compared to Q2 2021: energy (15.6% versus 6.5% a year ago) and industrials (9.8% vs. 9.0%).

Central bank policy is in the driver’s seat. Next week, the Fed is expected to significantly hike interest rates, perhaps by as much as 100 basis points (a basis point is 100th of one percent).

The U.S. dollar continues to gain strength, as investors embrace the greenback as a safe haven. The dollar hovers at a 20-year high, after gaining more than 10% this year against a basket of international currencies.

The dollar’s strength is great news for my wife, who has been hankering for a European vacation this summer. But it’s a problem for countries with dollar-denominated debt and for U.S.-based exporters.

A stronger dollar makes U.S. exports more expensive to foreign customers, and that could cut into the profits of many U.S. companies, which could harm or stop the recovery. However, the dollar’s strength could be a boon for U.S. equity markets, because it means more investment will come to U.S. companies.

PS: If you’re looking for an industry that’s poised for explosive growth despite these volatile and risky conditions, consider marijuana. That’s right…weed.

Pot companies are raking in massive profits and they’re making early investors rich. Want to learn more about the opportunities in cannabis investing? Read my new book: The Wide World of Weed and Psychedelics. It’s your definitive guide to making money in the “green rush.” To order your free copy, click here.

John Persinos is the editorial director of Investing Daily.

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