How to Trade… When Everything Goes Wrong
In addition to my duties at Investing Daily, I’m an aviation enthusiast who flies helicopters. It should come as no surprise that I revere the Wright brothers, who made the first controlled flight of a powered aircraft in 1903.
In a speech to the Aero Club of France in 1908, Wilbur Wright said: “I confess that in 1901, I said to my brother Orville that man would not fly for fifty years. Ever since, I have distrusted myself and avoided all predictions.”
As investment strategists, it’s impossible for us to avoid making predictions. It’s our job. This issue, with the Trump administration’s first 100 days behind us, I’ve turned to our top strategists for their latest forecasts and insights.
First, let’s quickly review how the conventional wisdom in recent months has been wrong about… well, nearly everything.
Concerning Britain’s referendum on whether to exit the European Union, most of the world thought the “leave camp” would fail. Brexit prevailed. Most pundits thought Donald Trump would lose the presidential election. He won.
Most of Wall Street thought the markets would crash if Trump won. They soared. The political odds-makers predicted that Obamacare repeal would never pass the House. Trumpcare passed.
Further surprises surely lie ahead. Is your portfolio prepared? As prognosticators, our in-house gurus actually boast solid track records, in large part because they always resist the herd mentality. Now is a good time to gauge their views.
Jim Pearce, chief investment strategist, Personal Finance.
Jim says that even if President Trump achieves success with some of his pro-business agenda, the demographic tide is working against him:
“It’s no coincidence the U.S. economy grew more rapidly while the baby boomers — the generation born between 1946 and 1964 — were in their prime working years and computers were driving enormous leaps in productivity. The result was annual economic growth in the mid-single digits for much of the 1970s, ’80s and ’90s.
Then, about 15 years ago, the baby boomers began exiting the workforce. At the same time, productivity tapered off because the benefits from automation and data processing had mostly been accounted for. Without the twin engines of demographics and productivity, the U.S. economy will lose steam. A recent Federal Reserve report estimates annual U.S. economic growth at less than 2% over the next 10 years.”
Jim also serves as director of portfolio strategy for Investing Daily. In today’s risky slow-growth context, he advises allocations of 35% stocks, 30% hedges, 25% cash, and 10% bonds.
Robert Rapier, chief investment strategist, The Energy Strategist.
Robert goes against the common notion that the fossil-fuel friendly Trump administration will hurt the solar energy industry. He says the solar sell-off in 2016 was undeserved:
“Solar power remains strong, even as legislation and executive orders are being passed that will likely slow the growth of renewables…
If you have a long-range outlook and can withstand some volatility, solar’s blistering pace may slow a bit, but it will probably still grow faster than anything else in the energy space.”
Robert thinks oil prices will continue rising over the long haul, a trend that he says won’t significantly undermine solar.
Igor Greenwald, chief investment strategist, Breakthrough Technology Profits and MLP Profits.
Igor is confident that the thriving tech sector has further upside ahead.
“The recent earnings-driven surge has left lots of technical short-term indicators looking overbought, so a pullback wouldn’t come as a surprise. Uptrends can be tougher than bear markets, psychologically. The temptation to cash out and lock in the gains is constant. And it‘s hard to pay up for something priced considerably lower just a short time ago.
But that’s what stocks do: they move, and trends built on stubborn public misconceptions can take a long time to play out. This tech move isn’t done and it’s important not to cut off likely sources of long-term outperformance in the name of dodging some short-term pain.”
Linda McDonough, chief investment strategist, Profit Catalyst Alert.
Linda points to the sharp rise in housing starts as a bullish portent for investors.
“Housing starts are on a tear, which is good news for investors… Housing starts represent a leading indicator and there is nothing a stock market analyst likes better than a hint of what the future holds.
A leading indicator is just that. It is a measurable economic data point that helps forecast a future change in consumer spending, inflation and corporate fiscal plans, among other stats.”
Linda says when building permits are running high, as they have been in recent months, investors should consider buying the stocks of companies that provide building construction materials, such as industry leaders Simpson Manufacturing (NYSE: SSD) or Louisiana-Pacific (NYSE: LPX).
Ari Charney, chief investment strategist, Utility Forecaster.
Ari says income investors shouldn’t fear the Federal Reserve’s tightening:
“Contrary to the conventional wisdom, a rising-rate environment hardly spells doom for dividend stocks. Ned Davis Research conducted a landmark 40-year study that looked at the performance of stocks during the three-year period following the inception of each Fed rate-hiking cycle.
The study found that dividend payers outperformed non-dividend payers, while dividend growers did even better. The key to this outperformance was the reinvestment of dividends, which goes a long way toward compounding wealth.
Nevertheless, as rates head higher, it’s important for income investors to become more selective. When it comes to utility stocks, investors should focus on companies with manageable debt that are poised to deliver above-average earnings and dividend growth.”
That’s why Ari likes NextEra Energy (NYSE: NEE) and Avangrid (NYSE: AGR), because they’re forecast to generate robust earnings growth, which should ultimately propel superior dividend growth. Combined with their strong balance sheets, these two UF Growth Portfolio denizens are positioned for sector-leading returns in today’s rising-rate environment.
Jim Fink, chief investment strategist, Options For Income and Velocity Trader.
Jim is optimistic but sees storm clouds on the long-term horizon.
“The outlook for the U.S. stock market remains bullish for the remainder of 2017. Although stock valuations are historically very high and near peak, short-term interest rates are historically very low and, together with corporate profit growth, support high valuations…
Longer term starting in 2018, risk of a negative-return calendar year at a minimum increases since we’ve gone eight consecutive calendar years with positive stock-market gains and the all-time record is only one higher at nine (1991 through 1999). When stock-market valuations get as high as they are currently, the forward two-to-four year average returns and maximum drawdowns are much worse than average.”
Jim Fink advises the following:
“Given the risks longer-term, a buy-and-hold stock portfolio will probably not achieve the annual returns you require. A more active trading approach will be needed — rowing instead of sailing.”
To properly get your oars into the water, Jim has devised a trading methodology that can leverage stock movements for exponential gains. In less than a year with this system, Jim racked up twenty-four triple-digit winners, along with more than thirty double-digit winners thrown in.
Jim calls his investment methodology the Velocity Profit Multiplier system.
As he attests: “I’ve built a fortune by sticking with it week after week, year after year.”
Want to know Jim’s secrets? Click here for all of the details.