Posted on 12/08/2021 10:32:28 PM PST by SeekAndFind
Stocks should continue to climb a “Wall of Worry”…
The atmosphere has changed dramatically since earlier this year. Individual investors are now fearful. They expect lower stock prices to come, and they fear high valuations.
Those fears are both overblown, as I explained yesterday . But another misunderstood market fear is weighing on investors’ minds today…
Again, it sounds scary, but it isn’t. It’s just another addition to today’s Wall of Worry.
Let me explain…
The Federal Reserve just started the process of ending its “easy money” policies…
It announced plans to reduce its bond-buying program last month. It has already put the first steps into place. And it has been signaling that interest-rate hikes could be coming sooner than expected, too.
Folks weren’t worried at all about rising rates earlier this year. But it’s a hot-button topic as we close out 2021. And for good reason…
Low interest rates have fueled the current bull market.
That’s because in a low-rate environment, there’s not much competition for stocks… You’re essentially earning 0% interest in your savings account. Bonds yield next to nothing. So, if you’re looking to earn anything in the current low-interest-rate environment, you have to buy stocks.
When rates start to rise, though, competition for stocks begins to rise. Investors start to see an increasing number of options to earn interest on their capital.
That’s why all eyes are on what the Federal Reserve will do next.
According to Fed funds futures contracts, options traders are betting we’ll see two rate hikes in 2022. And they expect that we’ll see three more increases in 2023.
In other words, the majority of folks don’t expect this low-rate environment to last much longer. But does that mean it’s time to get out of stocks?
You might be surprised to learn that the answer is no – at least in the short term…
For example, the Fed began raising rates in June 1999. It ultimately hiked rates five more times before the S&P 500 Index peaked in September 2000… And the index still rallied 12% over that 15-month period.
The first Fed hike didn’t kill the boom. Yes, the market eventually crashed. But there was plenty of additional upside before that happened… And worried investors who stepped aside early missed out on those gains.
The same dynamic played out before the 2008 financial crisis… The Fed raised rates in June 2004, but that was nowhere near the peak. U.S. stocks soared for years afterward.
There were 17 rate hikes in total from June 2004 through mid-2006… And still, the boom continued. Investors could have locked in 46% gains before stocks peaked in October 2007.
As I hope you see, the bull market will likely continue to climb the Wall of Worry… even as the Fed begins to hike rates.
Even though the S&P 500 is at an all-time high today, the market simply isn’t as frothy as it was earlier this year.
Worry is starting to set in… yet the S&P 500 remains in a strong uptrend. You want to take advantage of the good times as long as they continue. So, my advice today is simple… Stay long.
Good investing,
I’d sooner wait for them to come down hard.
With the dimmiecrats chomping at the bit run the debt up another $10 trillion or more? No thanks.
The stock market is in bubble land. I don’t like investing heavily in a bubble when a virtual pallet of pins is stacking up.
Lets see, their suggestion on 6/28/21 to buy WISH , would have only lost you 73% of your money on this one if you continued to hold, on 6/28 it was at $14.40 a share is now $3.78 a share,straight decline,never increased see: https://dailytradealert.com/2021/06/28/this-stock-could-double-from-here/
their suggestion to buy FASTLY, FSLY on July 13 at $53.71 did a little better and is now down just 10 at $43.21-see https://dailytradealert.com/2021/07/13/this-4-star-stock-is-a-buy-right-now-5/
it is not fair to rate a stock picker on two pics but I really did not see anything that suggests this site really rocks-so their overly used “climbing a wall of worry” suggestion is suspect , hope I’m wrong
bookmark
Same situation existed during internet bubble.
And situation repeated in real estate bubble.
Now it is covid bubble.
All bubbles get pricked eventually.
Longevity of bubbles depends on how much money is being printed.
What about Blackrock? Heavy into China I believe.
I was still working during the internet bubble and the real estate bubble. I stayed in the stock market (100%) and continued to buy mutual funds through my 401K. Worked out great.
When the Covid crash occurred (Feb/Mar 2020) I was 60/40 stocks/bonds. In mid March 2020, I took a chance and went all-in stocks. Worked out great.
Now that I am retired and taking RMDs, I have a different strategy. I have 3 years worth of RMDs in cash (to ride out the Biden fiasco) and the rest is in various Mutual funds and ETFs.
I am currently debating on whether to sell some mutual funds in anticipation of the bubble burst.
However, I will never be 100% out of the U.S. stock market.
I got out of the market 3 months ago. Way too scary based on our crumbling economy. The Fed is going to try to raise rates and things will get worse then they will be forced to quickly lower again. We are in hyper inflation now. Look for it to tip over into deflation.
This situation is one of the reasons why I like the trailing stop order.
I can select a percentage, say 15%, and my position automatically sells when the price falls that much from its high.
No, I don’t get all the possible gains, but I get out with a nice profit.
If your broker doesn’t offer trailing stops, you need a different broker.
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