Why the Stock Market Sold Off on Monday

Wall Street certainly rang in the New Year on a mixed note!

After rallying to new record highs at the market’s open on Monday, Wall Street’s mood turned sour. As a result, the stock market reversed course, and the three major indices plunged more than 2% in the early afternoon before rebounding into the close and trading relatively steady today.

During any big selloff, it’s important to watch the selling volume. If the volume builds, then the selling will intensify. Luckily, that wasn’t the case yesterday. The volume was light, so the pullback looked more like a market pause and a good buying opportunity for fundamentally superior stocks.

The reality is there’s still a bit of uncertainty circling Wall Street right now. The biggest concern is that Alibaba (BABA) CEO Jack Ma is missing. In addition, there’s been some back-and-forth about delisting three Chinese companies – China Mobile (CHL), China Telecom (CHA) and China Unicom Hong Kong Ltd. (CHU) – because of their military ties. The NYSE announced the decision on December 31 to delist, but abruptly made an “about face” yesterday.

Details behind the decision are sparse. The NYSE stated, “In light of further consultation with relevant regulatory authorities with Office of Foreign Asset Control FAQ 857, the New York Stock Exchange LLC (“NYSE”) announced today that NYSE Regulation no longer intends to move forward with the delisting in relation to the three issuers…”

Another issue is that the Atlanta Fed revised their GDP growth estimates for the fourth quarter down significantly. The Fed last estimated GDP growth of 10.4%, but that was lowered to 8.6% yesterday. The downward revision isn’t too surprising following the states reinstating lockdowns and coronavirus protocols after the spike in coronavirus cases. Clearly, the lockdowns are weighing on the U.S. economy, as consumers are still hesitant to open their wallets.

With all that said, I remain bullish on the stock market.

The reality is that the earnings environment will improve dramatically in 2021. Year-over-year comparisons for earnings and sales should be particularly favorable for the first two quarters of 2021. You may recall that the global pandemic significantly hindered economic growth and business prosperity during the first six months of 2020. As a result, it will be easier for companies to achieve strong results in the first two quarters of 2021.

The analysts at FactSet agree: The S&P 500 is expected to achieve year-over-year earnings growth of 22.1% in full-year 2021. That’s well above the 10-year average growth rate of 10%.

I should also add that every new president is given a 100-day honeymoon, which likely means President-elect Biden and his administration will receive little criticism during the first 100 days of his presidency. The Biden administration is also not expected to significantly increase income taxes during the first couple years, given the precarious nature of the U.S. economic recovery.

The outcome of the Georgia senate races this month could impact tax policy. But if the Republicans maintain control of the Senate, I do not expect an increase in the favorable tax rates on qualified dividends or capital gains.

And we can’t forget that the Fed will be keeping interest rates at or near zero through 2023. The 10-year Treasury yield remains below 1%. In comparison, the Dow and S&P 500 yield 2.51% and 1.82%, respectively. So, yield-hungry investors will continue to chase dividend-paying stocks.

The bottom line: There are a lot of factors that should get the stock market firing on all cylinders again.

Preparing for a Prosperous New Year

With that in mind, I look for fundamentally superior stocks to step into the spotlight in January and lead the market higher in 2021. My Platinum Growth Club Model Portfolio stocks are directly in line to prosper, given that they are characterized by at least double-digit earnings growth and have benefited from positive analyst revisions in recent months. So, as investors return to their trading desks, I look for my Platinum Growth Club Model Portfolio stocks to continue to meander higher.

It’s why I made several changes to my Platinum Growth Club Model Portfolio last week to ensure that my Platinum Growth Club subscribers are well-positioned to profit in the New Year, including selling four stocks and adding eight new names.

If you’re interested in my latest recommendations and want to get into position to take advantage of the coming strength with fundamentally superior stocks, now is the time to join me here at Platinum Growth Club. Currently, I have more than 100 stocks across all my services to choose from, and as a Platinum Growth Club subscriber, you have full access to each and every one.

Of course, you don’t have to invest in all 100+ stocks to grow and prosper this year. If you’d rather start small, I have you covered there, too. My Platinum Growth Club also comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different services – Growth Investor, Breakthrough Stocks and Accelerated Profits – so you can rest assured that you’re always invested in the crème de la crème.

If you’re interested, please click here for full details. And if you decide to join today, not only will you have instant access to all of my recommendations, but you’ll be just in time for my first Platinum Growth Club Live Chat Event of 2021, scheduled for next Monday, January 11, at noon. I will be covering several topics, including my latest thoughts on the current market environment. I will also take some time at the end to answer subscriber questions. So, if you join me at Platinum Growth Club today, you can send me your questions early.

Sign up here now so you don’t miss out!

Note: On Monday, I released my latest Portfolio Grader 500, a quarterly list of some of the best and worst stocks on the stock market right now. In it, you have access to 250 A- and B-rated powerhouses and 250 D- and F-rated sell immediately stocks. As a valued Platinum Growth Club subscriber, this reference guide is yours free. Read it here now.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Alibaba (BABA)

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