Here’s How You Should Be Investing Right Now
I’ve been getting a flurry of emails lately from readers who are deeply worried about worsening political turmoil and growing predictions of a stock market correction.
Take a deep breath, step off the ledge… and remember your long-term investment goals.
To be sure, market risks are mounting and the hyper-partisan noise in America has become deafening. But as an investor, you need to tune out the angry protest marches, the alarmist headlines and the shout-fests on cable television news.
Focus instead on the fundamentals, especially corporate operating results. In the coming week, there will be plenty of earnings scorecards for you to scrutinize. That’s your best source of clarity. And so far, the numbers are encouraging, although alloyed with caveats.
The search for direction…
To help you choose the right path, let’s see what our in-house “investment sherpas” have to say.
Linda McDonough, chief investment strategist of Profit Catalyst Alert, loves to break down company financial statements and identify market inefficiencies to uncover big opportunities. She explains the heavy emphasis she puts on earnings and the methods she uses to interpret them:
“Earnings season is a hectic time. As an analyst, I juggle plugging numbers into the quarterly earnings models I keep for every one of our stocks and scrutinizing the companies’ filings with the Securities and Exchange Commission while listening to conference calls. Stocks typically make their most dramatic moves during earnings season…
I grade each company objectively and quantitatively, giving me a hard-and-fast data point to guide my targets for and opinions about each stock.”
The overall earnings picture to date should instill confidence. As of today, with 34% of the companies in the S&P 500 reporting actual results for the fourth quarter of fiscal 2016, 65% of companies have beat the mean earnings per share estimate and 52% have beat the mean sales estimate, according to the research group FactSet. So far, the fourth-quarter blended earnings growth rate for the S&P 500 is 4.2%.
Those are welcome numbers in light of the protracted earnings recession corporate America has endured, but you still need to exercise caution. Earnings growth is probably insufficient to sustain the bull market much longer. Slowing economic growth, excessive valuations and political uncertainty all loom large.
The forward 12-month price-to-earnings ratio for the S&P 500 is 17.2, above the five-year average of 15.1 and above the 10-year average of 14.4. Meanwhile, the economic recovery is still on track but starting to sputter.
The U.S. Commerce Department reported last Friday that the U.S. economy grew at an annual rate of only 1.9% in fourth quarter of 2016, compared to 3.5% in the previous quarter. For full-year 2016, the economy grew a meager 1.6%, down from 2.6% in 2015. But the economy also boasts several bright spots, including low unemployment, rising home values, rebounding crude oil prices, and meaningful wage growth.
Robert Rapier, chief investment strategist of The Energy Strategist, is concerned about high stock valuations in the energy patch but maintains his overall optimism:
“What’s not in doubt, given the deals and the market’s response to them, is that we’re in rally mode still…
Industry leaders and longtime outperformers are buys again for us — and, in fact, are on our new 2017 Best Buys list. We don’t think they’ve come back all this way only to drastically roll over. But when the inevitable skim of the current market froth does arrive, they should hold up better than almost any other name.”
What does this merger of trends actually mean? Linda McDonough emphasizes that selective stock picking is more important than ever:
“My forecast for 2017 can be summed up in one word: rocky. Like the west coast of Ireland, the stock market will be full of jagged boulders and dangerous riptides. Not that 2016 was a day at the beach.
Still, the V-shaped recovery from 2016’s winter lows and the post-election turbo boost have made stocks expensive. Economic data, especially employment levels, have been robust, but higher minimum wages and skyrocketing health insurance costs will drag down further gains. I expect employment numbers to level off. Most stocks have gotten ahead of the fundamentals and even those stocks that can support higher prices may drop. But this volatility is the perfect market for the stock picker who can find long and short investments.”
Jim Pearce is chief investment strategist of our flagship publication Personal Finance and Investing Daily’s Director of Portfolio Strategy. Jim offers this advice:
“Waiting for the next crash can be a dangerous game, since they don’t occur as often as our fears predict, and we can lose by keeping cash on the sidelines awaiting a calamity that never occurs.
But piling into the stock market after a huge run-up doesn’t seem to make much sense, either. So I advise a balanced portfolio and making smart choices when buying individual securities to maximize gains while minimizing risks.”
Jim now recommends these portfolio allocations: 35% in stocks and the remaining 65% in cash, bonds and inflation hedges.
Got any questions about the market’s direction or any other investment topic? Send me an email: firstname.lastname@example.org — John Persinos
Pinpointing the winners…
Linda McDonough says today’s volatile conditions make it important for you to stick to quality. And when it comes to stock pickers, she’s one of the most seasoned in the business. With nearly 30 years of hedge fund experience, she has perfected the tools that help her pinpoint winning trades.
But Linda enjoys another powerful advantage: she regularly listens in on special Wall Street phone calls where “inside information” is shared that drives the movement of certain stocks. Few investors are even aware of these calls, but as a hedge fund veteran, Linda’s plugged in. She knows precisely when these calls occur and how to access them.
In fact, Linda knows when the next call is taking place and she wants to share it with you. She can provide you with the number to call as well as the date and time. And she’ll advise you on how to act on the information.
To get the inside scoop from Linda, click here now.