The financial media has been talking a whole lot about the U.S.-China trade war recently. Of course, this isn’t surprising while China and President Trump play “tit for tat” with tariffs. I said last week that I ultimately expect the U.S. to win, and I stand firm on that now.
What the financial media has not been talking about is the European Union (EU) election, which played a role in last Thursday’s big selloff. So, today, I’m going to explain what’s been going on in the EU and what investors should do now.
The EU elections started last Thursday, and there was a concern on Wall Street that there would be a big populist gain. A big populist victory would continue to undermine the British pound, and it would undermine the EU, too. As a result, the EU could be viewed as more dysfunctional, and that’s bad news for the British pound and euro.
Believe it or not, there’s more infighting between EU politicians than U.S. politicians. Right now, there’s a big populist movement happening in Spain and Italy, where they want to violate the EU budget guidelines. France is still dealing with yellow vest protests.
The weaker currencies across the pond have already further strengthened the U.S. dollar, and ignited an international capital flight that’s suppressing U.S. Treasury yields. In fact, last week, the U.S. 10-year Treasury yield dipped to about 2.3%, its lowest level since 2017. And if the British pound and euro took a hit in the wake of the EU elections over the weekend, we could see another drop in Treasury yields.
Well, that’s exactly what happened. The elections wrapped up on Sunday, with the highest participation rate in 25 years. The European People’s Party (EPP), the EU’s center-right group, and the Progressive Alliance of Socialists and Democrats (S&D), the center-left group, lost more than 70 seats. They also lost the majority they held for decades.
There was also a big shakeup in France. Far-right National Rally party of Marine Le Pen beat French President Emmanuel Macron’s party. The League, Italy’s far-right Populist Party, also won. Led by Deputy Prime Minister Matteo Salvini, it received more than 34% of the country’s vote.
And in the U.K., which wasn’t even supposed to participate in this election since it was supposed to have exited the EU by the end of March, rewarded the new Brexit Party, led by populist Nigel Farage, with more than 30% of the vote. This is especially big news because, according to Farage, “Never before in British politics has a new party, launched just six weeks ago, topped the polls in a national election.”
Interestingly, the stock market was relatively flat today despite these results. However, the 10-year Treasury stands at 2.27%, well below the 2.3% last week. What this means is that market rates are now being more controlled by international capital flows, rather than by central banks.
So … what does this mean for investors?
Well, simply put, it means it’s time to buy, buy, buy.
I remain extremely bullish on the stock market and see a big bounce coming once the dust settles around the politics abroad.
However, I recommend focusing on domestic names with strong fundamentals, earnings and sales momentum. These are the companies that will do well, as they do not rely on macroeconomic issues to move higher.
If you’re not sure which stocks to buy now, I strongly encourage you to check out the companies on my Breakthrough Stocks Buy List – especially the two new buys from the latest issue. My Buy List stocks are characterized by 44.4% average annual sales growth and 299.3% average annual earnings growth. Plus, my Breakthrough Stocks benefit from positive analyst revisions—and we’ll see more of this as we enter June and ahead of the second-quarter earnings season.
The bottom line: Every dip is a great buying opportunity, so sign up here so you can invest in the crème de la crème of stocks.