VIDEO: Trading Strategies for a Turbulent Market

Welcome to my video interview with Jim Pearce, chief investment strategist of Personal Finance and Mayhem Trader. Jim was trained as a stock broker, and he’s been following Wall Street for more than 40 years.

As the stock market rally gets wobbly, now’s a good time to tap his expertise. Below the video player is a condensed version of the interview.

Jim, thanks for being here.

You’re welcome, but it’s not as if I really have a choice. If I don’t do this call, I’m fired!

Ha. Well, over the years as a stock trader, you’ve amassed enough of a personal fortune, you don’t have to worry about paying your bills! Okay, let’s get to my first question: We’re starting to see “bad breadth” in the stock market, which occurs when fewer and fewer stocks are participating in the upswing. Is this a red flag, warning of a dying bull market?

Any time there are more stocks going down in price than going up, that’s a sign investors are losing confidence in the stock market. That also means most of the money is going into companies that are perceived as more resilient to a weaker economy.

We saw the same dynamic last year, especially with big tech stocks. They were viewed as beneficiaries of the pandemic while social distancing restrictions forced most of us to work, learn, and shop from home. That trend reversed during the first half of this year once vaccines started being administered to the general public.

However, the Delta variant of COVID-19 has renewed fears that the economy may once again have to shut down. Since June 1, the tech-heavy NASDAQ has gained more than 10% while the Wilshire 5000 is up by only half that amount.

As September unfolds, the consensus is getting bearish, with many analysts calling for a correction by the end of 2021. What’s your view?

I believe a stock market correction of 10% or more could easily happen within the next four to six weeks. In October, we’ll see the labor and inflation reports for this month. At the same time, most companies will release third quarter results along with guidance for the remainder of this year.

If any one of those data points comes in worse than expected, it may trigger a correction.

Bear in mind, the S&P 500 is up nearly 20% year-to-date, so a correction on the magnitude of about 10% wouldn’t be disastrous. Also, we’re due for a pullback.

We witnessed a market rotation earlier this year, with investors moving from growth stocks to value. But now, growth stocks are back in the vanguard, a trend mostly driven by a handful of big tech stocks. How long can large-cap tech stocks maintain their momentum?

I believe large-cap tech stocks can maintain their momentum into next year. They’re holding a lot of cash and can use that money to repurchase stock to maintain share price stability.

Most tech companies have business models that are quite flexible. To keep costs under control, they can quickly ramp up production during good times and quickly scale down during tough times. Also, demand for tech products and services tends to remain fairly constant even when consumers reduce spending on other items.

However, all of that may not be enough to offset the potential damage done by rising interest rates.

The Federal Reserve has indicated that it will soon “taper,” i.e. wind down, its asset purchases. What’s your sense as to when Fed tapering begins and how dramatic do you think it will be, at first?

How soon the Fed begins tapering will largely depend on how the jobs and inflation data for September look when those reports are issued in October. Lately, inflation has been rising faster than expected while the economy has been adding new jobs slower than expected.

Thus far, the Fed has justified its very accommodative monetary policy on the grounds that jobs growth is more important than tamping down inflation in the near term. However, if all we are getting out of it is rising inflation without jobs growth, the Fed may shift gears.

When the Fed does begin to taper, I expect that it will start slowly and gradually increase over time. Even when the Fed is tapering, it’s still injecting cash into the financial markets but at a decelerating rate, so tapering shouldn’t destabilize the markets.

As a new year approaches, is there one great investment theme that stands out in your mind?

So much attention has been focused on big tech stocks lately that the rest of the stock market has gone largely ignored. Many companies have been posting exceptional operating results, but their share prices don’t fully reflect their true worth.

Those stocks are poised to take off soon. As the smart money on Wall Street starts taking profits in big tech stocks, that same amount of money going into smaller companies will exert an outsized impact on their value.

I’ve been following this trend for the past several months and that transition could already be underway. If I’m right about that, a lot of money can be made in the months to come by owning these kinds of stocks.

Thanks for your time.

Editor’s Note: My colleague Jim Pearce has created a tool that lets him pinpoint lightning quick profit opportunities. It’s also a tool that won’t be available to anyone else. Not even existing Personal Finance subscribers.

As this proprietary tool finds new money-making trades, Jim will only share them inside his new advisory, Personal Finance PRO. Click here for details.

John Persinos is the editorial director of Investing Daily. Send your questions or comments to To subscribe to John’s video channel, click here.