What a week it’s been so far, with two major selloffs under the stock market’s belt. Here’s why…
On Monday, the pullback, which triggered more than a 900-point drop in the Dow, was directly related to China’s move to devalue its currency. That, in turn, was a response to the Trump administration’s announcement of 10% tariffs on $300 billion worth of Chinese goods last week.
And then, on Wednesday, three major central banks slashed key interest rates: India, New Zealand and Thailand. This move coupled with a poor industrial production report from Germany triggered a massive selloff.
So, the dramatic global interest rate collapse continued. As a result, the U.S. 10-year Treasury was barely above 1.6%. Today, the 10-year Treasury is sitting a little above 1.7% – but it’s still possible that that rate could dip to an all-time low of 1.3%, which it hit right after the Brexit vote was announced three years ago.
Now, the interest rate collapse is a big deal. Switzerland has negative interest yields 50-years out. And if you’re invested in Germany or the Netherlands, the yield is negative 30-years out. Basically, every country in Europe has a negative yield. So, if you stuck your money in the bank, you’re looking at a negative yield.
The thing is, Europe can’t raise taxes anymore, so the European Central Bank (ECB) is forced to print money to make ends meet. And that is causing the collapse in rates. Then, on top of that, Europe is a political mess, too. Brexit is still an issue, and there have been major protests in France and China.
But here’s the good news: The U.S. remains the oasis around the world.
There’s a lot of money sloshing around right now. And it’s coming directly to the U.S. We have the growth, we have higher interest rates, and we have a stronger central bank that thinks and analyzes the economic data first…before cutting key interest rates. We know two more key rate cuts are in the pipeline, so now it’s just a matter of when. After those cuts, I expect stocks to bounce.
In the meantime, it’s been a good second-quarter earnings season. Earnings are positive (not negative as expected), and sales have been decent, too. Now, in my Growth Investor service, we’ve had a stunning earnings season. Our sales and earnings are significantly better than the overall markets. For example, in August, 13 Growth Investor companies have reported. 12 out of those 13 topped analysts’ estimates, and one reported in-line numbers. And I expect this earnings momentum to continue for our companies even as this earnings season winds down.
Dividend Stocks Set to Lead the Market
Looking forward, after the market settles, I expect dividend stocks to lead the way higher. On Wednesday, the S&P 500 dividend yield was 0.5% above the 10-year Treasury, something I’ve never seen before. Dividends are still growing, and in the U.S., they’re taxed less than interest income.
Plus, we should see more companies announce stock buyback programs, which, along with dividends, is how companies take care of their shareholders. Stock buybacks effectively reduce the number of shares outstanding and provide a solid foundation for stocks. And given the current low interest rate environment, I’m expecting to see even more corporate buyback announcements in the upcoming weeks, which should drive stocks higher.
The bottom line: Don’t worry about the gyrations. I recommend thinking of these past selloffs like an earthquake. And what we experienced yesterday was like an aftershock. So, now is the time to invest because you don’t get buying opportunities, like the ones we saw this week, very often.
And if you’re not sure where to invest first, I encourage you to check out my Growth Investor service. The companies, which I like to call my “Bulletproof” stocks, have strong fundamentals, sales and earnings growth, have seen excellent buying pressure and reported stunning earnings this quarter.
And to take advantage of the money flow to dividends, I have an Elite Dividend Payers Buy List, which features 27 strong dividend growth stocks, almost all of which yield more than the S&P 500. These stocks are poised to do well as we continue to see international capital flow to the U.S. stock markets. Click here to find out all the details.