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The second half of 2022’s stock market rally came fast and furiously, undoing much of the damage done in the first half. In past articles, I have noted that after one of the worst one-year first halves in half a century, the second half was highly unlikely to match the magnitude of the decline.
Without a doubt, the most bullish days and rallies in the market tend to closely follow some of the ugliest crashes, plunges and bear markets. Now, that’s been a slow, steady fall into the abyss amid the 2022 bear market selloff. That may have caused many to give up on dip buying. For those willing to delay gratification, however, the stock market is now rewarding the patience of many who stuck to their long-term game plans, rather than buying into the overly pessimistic forecasts of Wall bears and Bay Street.
Bears hibernate amid market rally!
There were smart market strategists who kept lowering their price targets for the S&P 500. The pattern of lowering the bar continued until the bar was lowered well below the low point of the market in June. This is the danger of continuing to turn more bearish after substantial damage has already been done. Eventually you will miss the bottom of the market and may need to buy back shares at much higher prices, running the risk of continuing the momentum and fighting the feds. Reserve.
It’s never a good idea to fight the Fed. And it’s an even worse idea to have to because you’ve bought into a bear thesis on the way down. These bears have doubled their low price targets and they seem to be going back into hibernation. Undoubtedly, the bulls are finally starting to shine, while the bears will remain silent for a while before giving in and raising their price targets.
As smart as market strategists are, no one, not even Warren Buffett or his right-hand man Charlie Munger, can time markets in the short term. Instead, it’s a good idea to aim for a period of five to ten years. Ultimately, the bumps in the road (no matter how deep) will be part of your journey to a successful retirement.
Bank of Nova Scotia: Banking on a rebound
After such a bull run in stocks, the value is not as good as it was a month ago. Still, many names remain a better deal than at the start of the year. And in this article, we are going to check out a name that I would be looking to complete. Consider Bank of Nova Scotia (TSX:BNS)(NYSE:BNS). The big banks have taken a big swipe at the chin this year. Despite fading recession fears and resuming relief, BNS shares are still down more than 15% from their peak of around $95 per share.
Today, the stock is up more than 12% from its June lows, but the shares are still trading at just 9.7 times the price-to-earnings (P/E) ratio, which is well in below industry averages. The dividend yield of 5.13% is also plentiful enough for long-term investors looking for the perfect combination of dividend growth and initial yield.
For the last quarter (Q2), there were few signs of a severe recession. Loan growth was robust, driving earnings per share up 15% year over year ($2.18 vs. consensus of $1.96). Net interest margins (NIM) also increased slightly, partly due to recent rate hikes. Going forward, I would expect these NIMs on deposits to increase further as the Bank of Canada continues to battle the high inflation rate (8%).
With promising exposure to emerging markets at a relative discount, I see BNS stock as a great way to continue the second half rally.