I can describe the market in one word – oversold.
Please don’t think I’m glossing over what has been a very choppy market of late, one that last week hit its second correction this year.
But here’s the thing. The recent slide in stock prices across the board belies some key facts…
- The economy is in great condition.
- Unemployment is at a 49-year low.
- Consumer confidence is at 18-year highs.
- Wage increases are their highest levels in more than a decade.
Now, if you are anything like me, you’ve been paying close attention to the midterm elections that are taking place today.
The point of this chat is not to predict the outcome, although I think the Republicans have a shot at holding onto their majority in the U.S. House of Representatives.
What I want to make sure everyone understands is that – regardless of the outcome – we are in one of the best economic environments we have seen in decades.
And I see a possible market rebound in the making.
Today I’ll show you why I think that’s so.
Taking the Market in Stride
On Oct. 26, I gave an investor presentation at Money Map Press’ Black Diamond Conference in sunny Carlsbad, Calif. The point of my talk was to show folks five tools for scoring big gains with cannabis stocks.
Earlier that day, I joined a round-table chat hosted by Suzanne Sena, the very talented anchor of the weekly webcast, Fast Profits With Money Morning. And during that round table, we talked about the Oct. 19, 1987, stock market crash when the Dow Jones Industrial Average fell more than 22% in a single day.
I couldn’t help but share one of my favorite anecdotes.
I told the audience that, back then, I was the San Francisco bureau chief for American Banker, the trade journal bible of the banking industry.
My boss called from New York to talk about the crash.
“It’s kaboom,” he said.
“No,” I deadpanned. “Wall Street is having a sale.”
The joke went over well with the audience, and Suzanne even gave me a shout-out for sharing it.
If there was ever a day to buy panic, that was it – and we’ve been seeing a similar moment over the last couple of weeks.
I was happy to see that every investor I spoke with over two days at Black Diamond was taking the market’s correction in stride.
No, they didn’t like seeing paper losses or taking profits on their favorite stocks when their trailing stops kicked in.
But as we went through all the positives in the U.S. economy right now, everyone seemed to agree that the worst was probably over and that there are going to be some great buying opportunities ahead.
Voting With Their Wallet
Before I detail some of the bright signs on the investing horizon, let’s spend just a moment addressing today’s midterms.
Just to be clear, I’m a fiscal conservative and registered independent. I try to be as nonpartisan as I can.
The vast majority of polls are predicting a “blue wave” in which the Democrats take control of the House. Yes, that may very well be the outcome we see when we watch the results come in later tonight or in tomorrow’s morning paper.
But the Republicans have the economy on their side. That may be enough to swamp the anti-Trump fervor driving Democrats to the polls and allow the Republicans to keep a very slim hold of, say, three to five seats.
Here’s why I say that. Late last year, the GOP passed a controversial tax cut on corporations, lowering the rate from 35% to 20%.
Whatever you may think about this politically, it so far seems to be helping private-sector employees. Those are folks who vote with their pocketbooks.
The U.S. Department of Labor says that employment group saw their wages rise by 3.1% from a year earlier, the highest increase since 2008.
This rise in wages comes amid a historically tight labor market, one about as good as the day the Beatles released their signature Abbey Road album on Sept. 26, 1969. Earlier this month, the jobless rate declined to a near 49-year low of just 3.7%.
No wonder the Conference Board recently said its index of U.S. consumer confidence rose to 137.9 in October, the highest level since September 2000.
And let’s not forget the overall strength of the economy. In the second quarter, we saw GDP expand by 4.2% to among the highest rates it’s reached since the recovery began.
For the most recent quarter, growth slowed slightly from the previous reporting period but was still up 3.5% from the 2017 period. The results were the best back-to-back growth rates in four years.
Meantime, corporate earnings remain in great shape. FactSet predicts S&P 500 firms will grow third-quarter earnings by 19%, the third-best rate in more than seven years.
So, why the recent sell-off in stocks, particularly in the big tech names?
We’ve got a one-word answer: uncertainty.
The Name of the Game
Wall Street and its automated trading systems punished stocks for three weeks out of concerns that global growth is slowing. There also was concern about how the midterms would affect the current growth agenda.
Add to that the fact that Italy’s economy has slowed, creating some doubt about how Europe may fare the rest of this year.
And I believe too many professional traders freaked out when 10-year Treasuries crossed above 3%. They fretted that the Federal Reserve may increase interest rates more aggressively than previously thought because of inflation.
It, admittedly, is a lot to take on all at once.
These fear factors are what drove traders to punish growth stocks, including big tech names like Amazon.com (Nasdaq: AMZN), which fell 25% from Sept. 4 to Oct. 30. Small-cap growth names got hit even harder. As a group, they dropped 50% more than the tech-centric Nasdaq Composite, which declined 13% between Aug. 29 and Oct. 29.
One final reason I say a rebound may be at hand has to do with history. Over the past five years in particular, we’ve seen the market tank only to rise and set new records.
For proof look no further than Jan. 26, when a 10% correction in the S&P began. After the S&P bounced back on Feb. 8, it rose 12.4% before the recent sell-off began Oct. 4.
So, while we may keep seeing volatility for a while, I still see plenty of ways to make money in high tech and related stocks.
For one thing, I’m talking about the huge catalyst hitting legal pot stocks today.
Over the past few years, we’ve seen no fewer than 64 cannabis stocks launch to 1,000% gains.
And today, Election Day, could be your last chance to get in before the coming surge, as five states vote to update their laws on cannabis.
We’ve handpicked our top cannabis companies that could mint a whole new generation of marijuana millionaires. (Get more details here.)
To get yourself started, click here – before the polls close tonight.
Then I’ll see you back here later – with the profitable results.