Credit: Shutterstock photoThe big lesson of the past year is that the broad market can go nowhere for several quarters, while many individual stocks launch like rockets and make stock pickers far richer than "indexers."
And right now, it's not only still a great time to be a stock picker, it is actually crucial to your portfolio and wealth-building campaigns. Why crucial? Because there are 2 threats staring at your stock market money...
Threat #1: More of the Meat Grinder
When it comes to justifying the S&P 500 trading at 20 times trailing earnings, the fundamentals "have left the building" this year. The economic data and earnings growth just aren't there.
Truth is, it's the central bank's long-term commitments to extraordinarily low interest rates that are driving institutional investors to find more stocks and ETFs to buy.
And the market is always forward-looking, with expectations for GDP growth and corporate profits the rest of the year "good enough" to keep the S&P flirting with all-time highs above 2175.
For now , that is. I think the market is vulnerable to a lot more volatility in the near future. There's just too much hope -- and faith in monetary policy -- and too little evidence to support it.
There are also a lot of price gaps to fill all the way back down to S&P 2000.
Sure, the S&P could rally up to 2200 this summer, but it will still be a merciless and choppy ride where "average" stocks will be frustrating to own. And the more likely scenario -- big swings of pessimism with violent sector rotation -- will make owning below-average stocks very painful.
Continued . . .
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Extreme Profit Opportunity at Hand
Strong U.S. growth and low interest rates are predicted to continue driving the S&P 500 to all-time highs. You are hereby invited to take part in a unique initiative for substantial profits in 1 to 12 weeks.
Every weapon in the Zacks arsenal will be exploited to find the best trades for maximizing gains in these historic times. They will also be aimed at catching dips that may offer even greater buying opportunities. Today, Zacks Senior Strategist Kevin Cook is opening his portfolio to you. Plus you are welcome to download Zacks' 7 Must-Buy Stocks for August, 2016. But hurry -- this arrangement ends Saturday, August 6.
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The solution is simple, but it's not easy: find the best and the worst stocks, then buy the first group and short the second group.
How? By using the Zacks Rank to identity both groups of stocks, those with the best positive earnings momentum and those with the worst negative earnings momentum.
It's okay to buy superior Zacks #1 Rank stocks at these market levels because these are the ones that institutions are buying now, and they will fall the least and be the first and strongest to rally when investor risk appetite resumes.
And your hedge is to sell short the Zacks #5 Rank stocks with the best risk/reward downside. In other words, what better time to short, or buy puts on, the stocks with downward earnings trends while they are trading near their highs?
Threat #2: The Classic Autumn Meltdown
Many big name investors like Ray Dalio of Bridgewater, the biggest hedge fund on the planet, and David Kostin, chief US equity strategist for Goldman Sachs, have been worried for over a year about market valuations and deteriorating fundamentals propped up by central banks and QE.
The correction of Q1 that took the S&P 500 down to 1812 did much to "correct" that exuberance. But then the market grabbed it all back in only a few months -- even though the fundamentals hadn't really improved.
Then Brexit brought another 5% hiccup, and the market immediately shot back to new all-time highs.
What's the message here?
That as long as interest rates are extremely low, and there is some economic and earnings growth, then stocks are the place for large investors to always put new money.
And that means you always buy the 3-5% pullbacks and you always prepare for bigger corrections too.
I expect another correction of greater than 5% soon. It could actually start at any time. And you want to be ready to buy that opportunity because that's what institutional investors will be climbing over the top of each other to do.
Many of these pros, managing trillions of dollars in the aggregate earmarked solely for equities, don't care about Europe, China, or even the Fed's next interest rate hike.
They block out the noise and continue to invest for the long-term based on company fundamentals they envision 3 to 5 years from now.
The Yellen Put Is a Clear Mandate
The Federal Reserve has made it perfectly clear that they will keep monetary policy very accommodative as long as GDP and inflation are subdued.
So that means if a big pullback does begin to unfold, you don't run for the hills. The big guys certainly aren't doing that. After they sell some of their big winners, they are buying new stocks on the way down.
Again, quality growth stocks will be the first to turn higher and run the strongest when the panic is over. And that's when the big money is made buying quality on sale.
Bottom line: you want to be positioned for those rallies by getting into great stocks that institutional investors love. All this requires is having a plan and the discipline to follow it.
My edge is not that I am the greatest stock picker in the world. It's that I know how to follow the best.
How to Get Started
A good way to take advantage of what the market is giving us is through the portfolio service I'm directing, the Zacks Tactical Trader.
In addition to tracking and acting on "smart money" moves, the key to our approach is flexibility. I'll fire off every weapon in the Zacks arsenal to take the utmost advantage of market swings up and down. We'll ride the bull as it continues to rack up all-time highs. But we'll also catch the inevitable dips which could prove to be even more profitable buy opportunities.
To get you off to a head start, I've arranged for you to download a free copy of Zacks' 7 Must-Buy Stocks for August, 2016. From 220 Zacks Rank #1 Strong Buy stocks, our experts distilled 7 with the highest potential for an immediate breakout.
But I must caution you that this free bonus is only available until Saturday, August 6.
Look into Tactical Trader and Zacks' 7 Best Stocks now >>
Good Investing,
Kevin Cook
Kevin, a Global Market Expert at Zacks, is well noted for predicting and tracking the movement of smart money and calling market swings with remarkable accuracy. He provides commentary and recommendations for the Zacks Tactical Trader.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
