The Stock Market Is Cleaning House

There’s a rotation going on in the market right now. On September 1st, financial stocks like Fannie Mae and AIG cracked, sparking an exodus of money out of financial companies and into stronger stocks. This money isn’t leaving the market. Instead, cash is being redistributed to the stocks with the balance sheets to back them up. And a closer look at institutional funds show that new money continues to flow into the stock market with each passing day–money that is being pumped into proven companies with great sales and earnings, not fad flash-in-the-pan investments like financial stocks.

The stock market is cleaning house, which is why we saw some brief consolidation last week. But as yesterday’s triple-digit rally shows, the underlying direction of Wall Street is still pointing upwards. The markets want to rally–look at a chart of most trading days and you’ll see that even after a dip in early trading, the major indexes always finish strong.

The best news is that this shift to fundamentally superior stocks is happening just in time for earnings season! With financial companies falling by the wayside, new market leaders with staying power can finally reclaim the spotlight that they deserve. The stocks on every investor’s mind right now are fundamentally superior stocks that rate A or B on Portfolio Grader. I’m confident these picks will benefit the most as buying pressure returns to the market and trading volume picks up in anticipation of third-quarter earnings.

In general Q3 earnings for the S&P 500 should be up considerably. A weak dollar since the start of the year will boost the profits of multinationals and commodity-related businesses. To qualify as a good dollar play in my book, at least 20% of a company’s total sales must be overseas.

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