The market experienced another dramatic dip today, so I thought I’d take a few minutes and let you know why I think this is happening and what will happen next.
There’s plenty of trials and tribulations going on overseas, so I sure am glad to have been “buying American” already. (Generally speaking, my portfolios have had a heavy weighting in U.S. stocks for quite some time.)
Let’s take a quick look at the latest developments in Europe and Asia, because they have a particular impact on the stock market here – although it’s quite different than you might be thinking.
At the moment, one of the big stories is that the tariffs against China started today. The two sides will meet soon in Washington, D.C., and we’ll see how those negotiations go. But, of course, China devalued their currency, so I just don’t think we’ll see the impact at the stores. However, that’s one reason stocks fell out of bed this morning.
The other culprit for the rough start to September is the U.K.’s new Prime Minister, Boris Johnson. He is pushing his country closer to a no-deal exit from the European Union (EU) on Oct. 31 by getting the queen to suspend Parliament in the meantime. The opposition to Johnson is very vocal, so he’s threatening to do a snap election in mid-October if they don’t shut up and let him proceed with Brexit.
Now, when the U.K. leaves, they will no longer be contributing a big portion of the EU budget. That is, of course, what pays the salary of all their bureaucrats that have gathered around Brussels over the years.
So, the EU is very worried about the effects of that, and wants Britain to pay a huge exit fee. But Boris Johnson doesn’t like their terms. And the no-deal Brexit is bad news for the remaining EU nations, as we just saw.
What’s more, Europe is already in a weak position, economically:
Germany slipped into a mini-recession in the second quarter. Italy is always teetering on a recession; France is strong at this moment. But bonds have negative rates in Europe. The 10-year German bund is below -0.7%, and it could go below -1% soon. Worldwide, there’s over $17 trillion in negative-yielding government debt!
Here in the United States, in September and maybe December, the U.S. Federal Reserve has to cut rates, too. But it’s not because of any mini-recession, like Germany! While manufacturing has cooled lately, we just learned that the U.S. GDP gained 2% in the second quarter – so we’re still growing. After all, we’re a 70% consumer-driven economy.
As I’ve just reminded folks in Growth Investor, our Fed simply has to adjust course because of the falling and even negative yields elsewhere.
But The Media is Reporting This All Backwards
Now, in the financial media, much is being made of these rate cuts…and particularly the “inverted yield curve,” in which you actually make more on short-term bonds vs. longer-term bonds.
On TV, the talking heads often make this seem like a doomsday omen for the stock market. But in fact, it’s just the opposite! It’s my number one reason to lock and load with the best U.S. stocks now.
Remember, if you can’t even get 2% from a 30-year U.S. Treasury, where are you going to turn for better yield? To U.S. stocks.
Don’t take my word for it; look at what happened in this situation 11-plus years ago. The S&P 500 has almost tripled since then!
And now, I think the S&P can triple AGAIN before it gets to fair value. Based on any dividend discount model, price-to-earnings ratios should be about 65:1 right now.
High dividend stocks are particularly firm right now. After all, the “smart money” on Wall Street knows that dividends are crucial for their performance stats: The income ultimately smooths out a portfolio’s returns overall.
Speaking of “Juicing” Returns…
There’s another trick Wall Street money managers have up their sleeves. It’s called “window dressing.” When we approach the end of a quarter, big money will often buy top-performing stocks to spruce up their returns when they report the performance of their current portfolio.
The influx of cash gives those stocks even BETTER returns. That’s what we’re about to see as the third quarter closes at month-end.
And we can go along for the ride – as long as we get positioned by, say, September 16.
You won’t want to let the clock run out on this. After September 16, the next buying window won’t really open until next earnings season.
To play this with today’s top dividend growth stocks, you’ve really got to own what I call the Money Magnets.
Click here for all 3 steps you should take right now and learn more about this phenomenon.
Note: I should add that we’ve also got Hurricane Dorian moving up the eastern seaboard. The storm is disrupting a lot of air traffic and commerce as well as its tragic impact on the northern Bahamas.
Hopefully we’ll be able to help the people there – but please don’t worry about the market. In the end (for the reasons I outlined above), U.S. stocks will continue to be the oasis for international capital.
However, the sudden devastation of a hurricane is a good reminder: In life, all sorts of crises can (and do) happen. Before events play out, you never know how hard they’ll hit, or how lasting the impact will be…
But as an investor, you CAN prepare by buying bulletproof stocks for your portfolio.
And when good stocks are unfairly impacted by unrelated events, like Brexit and China tariffs, it’s a great opportunity to do just that – at a cheaper price.