Update - January 25, 2022

The Good News in the Market’s Downturn

Another one of our big predictions appears to be coming true.

Sorry.

Last month, of course, we called for a recession in the second half of the year. The latest market action appears to be confirming our fears.

But there’s good news in all of it.

The market’s rapid about-face could be creating the best-case scenario for investors. I’ll cover why this could all be good for stocks in full detail during Thursday’s crucial “Emergency Bear Market Meeting” – a video call with all Manward subscribers.

It will go live at 3:30 p.m. ET on Thursday.

You won’t want to miss it. Just this morning, the International Monetary Fund cut its economic forecast for the United States and the globe. It says global growth this year will come in at 4.4%. That’s down a full 50 basis points from its previous forecast.

But here’s the important part. The IMF cut its U.S. growth forecast by 120 basis points. It now expects growth of just 4% – hardly the runaway economic expansion so many pundits have been touting.

Of course, I think things will be even worse. If the Fed makes good on the market’s expectations of four 0.25% hikes this year, growth will go negative in the second half of 2022. We will go backward.

After what we saw last year, that’s not necessarily a bad thing. A bit of a reset could spark another big run to fresh highs. After the rout of the last few weeks, stocks could easily move higher even as the data turns sour… especially if the Fed shows any hints of backing down.

Again, I’ll have many more details, charts and figures during Thursday’s rare all-Manward video call.

Look for more details as we get closer to the event.

Right now… let’s take another look at CSX Corp. (CSX) – the stock I was so excited about last week.

A Confused Market

As expected, the company beat Wall Street’s estimates. With profits of $0.42 per share, the bottom line was a penny per share higher than expected.

Sales, too, were a win. The company booked revenue of $3.4 billion, more than $100 million over the Street’s predictions. And as promised, intermodal sales jumped 16% on flat volume – vindicating my expectations of growing margins.

Even with the good news, shares of the company fell. They dipped less than the overall market – a very good sign – but they still fell.

What gives? A couple of things…

First, a falling tide lowers all ships. With market headwinds as strong as they’ve been over the past week, it would have taken a tremendous beat to get shares into positive territory. When Wall Street’s algorithms price in new variables (like they’re doing as interest rate expectations climb), it pulls the value of almost everything down.

It’s not all bad news, though… especially for folks with patience. As the market regains its footing, CSX is likely to remain a market leader. That means it will produce outsized gains.

The second – and much smaller – reason the stock fell with the market is that one figure came in below Wall Street’s expectations – the company’s operating ratio. Operating ratio is a measure of a firm’s expenses versus its net sales. The lower the ratio, the more efficient the company is.

In the case of CSX’s fourth quarter numbers, the ratio rose… showing the effect of increased costs. It climbed to 60.1% from 57% (which was a record) for the same period in 2020.

Given the inflation we’ve seen over the past 12 months, it’s not a surprise, but the figure was worse than some estimates, which helps to explain the moderate post-earnings sell-off.

Several folks wrote in asking why the stock sold off given the otherwise stellar report. That’s why. The stock remains a “Buy.”

The rest of our portfolio is holding up fine given the circumstances. I’ll keep an eye on things and keep you up to date on anything important.

Again, we’ll go much deeper on Thursday.