The Stock Market is Changing, It Is Time For Thoroughness Stock Picking

This article about stock picking was written by Gabriel Plat, a Financial Analyst at I Know First.

Stock Picking


  • Inflation and interest rates are still rising and changing the stock market universe;
  • During inflationary periods, sectors such as oil tend to perform above average;
  • At the same time, bonds should be avoided;
  • For better stock picking, AI can help you.

The Situation Is Not The Same

Forget about the pandemic. By the time I am writing this article, the daily deaths 7-days moving average have reached the same number we had by March 2020. All in all, the Covid-19 tends to impact less and less over the stock market. The “after every storm, there is a rainbow” quote may seem appropriate for this moment, but not for the stock market world.

Last October, I wrote an article about how prices were rapidly increasing and one of those reasons was the government’s responses to the pandemic. Fast forward to April 2022 and we are facing an 8.5% increase in the U.S. price index over the last 12 months, the biggest year-over-year jump in more than 40 years. From February to March, the index rose 1.2%, the biggest one-month increase since 2005. Russia’s invasion of Ukraine, followed by several sanctions against the Russian economy, contributed to the price’s increase.

Stock Picking
(Figure 1: US and Canada Price Indexes Over The Years)

An inflation crisis is nothing new to us. In the 1970s, for example, the U.S. faced a 6.8% average inflation for the decade. By 1980, the yearly inflation topped 14%. If we look at the S&P 500 performance adjusted by inflation, we can see the decade impact on the index returns.

Stock Picking
(Figure 2: Inflation-Adjusted S&P 500)

The 1970’s also dealt with interest rates sky-rocketing, something that may be on the horizon after Christopher Weller, a FED board member, declaration. Having said that, how can we take advantage of this information to invest properly today?

It Is Time To Take Advantage Of Stock Picking

On April 1st, 2021, the S&P 500 broke the 4,000 mark for the first time in history. One year after, there is a fear that the index might break below this level. According to a Bank of America survey, 64% of investors believe that the index will fall below the 4,000 level this year. Facing this scenario, specialists are talking about being more selective, where stock picking can surge as the best investment strategy.

Tony DeSpirito, BlackRock’s CIO of U.S. fundamental equities, warned about the differences we may face in making money in the stock market from now and beyond. For him, the current situation “is fertile ground for individual stock pickers”.

More than that, Head of Citi Global Wealth Investments in North America Kristen Bitterly also talked about stock picking. During a Yahoo Finance Live, she said to “lean into the parts of the market where you have quality”.

But which stocks should we consider selecting?

Historically, the oil sector tends to perform well during high inflation periods. For example, we could see USO, an oil ETF, rising above 80% over the last 12 months. From a Wells Fargo study, the gains from oil assets during inflationary times are almost three times the 12% average. I was already pointing to the sector as a solid investment opportunity back in October and, since then, the crude oil price rose almost 43%.

The same study also pointed to other two asset types that are worth investing in. Since 2000, the emergent market stocks had an 18% yield during inflation periods, while gold comes right behind at 16%.

Furthermore, the sector rotation strategy can be very helpful in this situation. This strategy allows investors to stay ahead of the economic cycles, including periods of high inflation rates. More than that, it is a strategy that can be perfectly paired with artificial intelligence.

Be Careful When Stock Picking

Concomitantly, there are some sectors and assets that tend to perform below average during inflationary periods. Following the same study from Wells Fargo, we can analyze what we should avoid.

Bonds, for example, are avoidable. As we said before, FED’s intention is to elevate even more the interest rates – a common decision to reduce inflation – and this will directly affect bonds returns. Over the last year, the Vanguard Total Bond Market ETF (BND) fell by 8.6%. Since 2000, the asset average return during inflationary periods is a negative 5%, the second-lowest return from the study.

And if you are wondering about the lowest average return, it is the Emerging Market Bonds. Based on periods of inflation post-2000, the asset registered a -8% return on average. Looking at the current situation, the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) is on a 13.8% decline over the last year.

Artificial Intelligence Is The Best Friend Of Your Portfolio

The AI-powered algorithm developed by I Know First is perfect to help investors that are concerned about inflation rates. By using machine learning and over 15 years of stock database, the algorithm provides outlooks for different stocks in different time horizons, for both short and long positions.

For ETFs, for example, I Know First has a special forecast focused only on them. Over the last year, the package had a 23.44% average return while the S&P 500 index only returned 14.0%. XOP and OIH, ETFs from the oil sector, all moved accordingly to the algorithm prediction. In other words, our clients were able to enjoy a solid investment opportunity despite the inflationary period.

ETF To Buy chart
(Figure 3: ETF Forecast Performance)


The most recent decisions from the FED indicated that we are facing a period of high inflation and interest rates. In light of this situation, investments must be done in a proper way to avoid unnecessary risks and, of course, losing money. Since 2000, some sectors tend to perform better in periods like this one. While the oil sector usually performs above average, the exact opposite happens in bonds investments. All in all, it is the perfect scenario to start stock picking. For any type of investment, I Know First can help you. We offer several forecasts from our AI-powered algorithm to help you. With it, you can avoid inflation and boost your portfolio at the same time.

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