With the S&P slowly climbing back toward all-time highs, investors are wondering how to maneuver their assets going forward. For those exposed to the market surge since the election, it has been rewarding, with returns over 30% in the S&P 500 alone. For those who overlooked the opportunity, there is now an urge to catch up with the rest of the pack. If you are in the later camp I know what you're thinking...
How did I miss out on 30%?!
Maybe you were too cautious because you didn't feel you knew enough about stocks. Maybe it was nervousness about the uncertainty surrounding the administration. Understanding yourself and the psychology behind why you missed out is important. But more important is NOT missing the next opportunity, and NOT being fearful to take the risk that comes with nailing that move.
As we start the second half of 2018, it is paramount to have a game plan. It's very likely that we will see another pullback with some consolidation, before ultimately moving higher. Upcoming pullbacks will be caused by market events that will be fueled by anxious bears. This is the time to strike!
If investors know what sectors to buy and what stocks to focus on, the rewards can lead to double-digit percentage gains.
Below I talk about upcoming market risks, sector rotation winners and why buying the next big dip will be rewarding.
Short-term market risks
1) Interest rates -- Perhaps the biggest fear is how much the fed will raise interest rates this year. Will we see three or four rate hikes in 2018 and if it's the latter, how do markets respond? The recent market dip saw a violent move lower in equities and bonds as rates went higher.
2) Inflation -- As the economy strengthens, inflation starts to creep in. And the more that inflation creeps into the U.S. economy, the more the Fed will want to raise rates. This inflation issue makes risk #1 even bigger in the eyes of investors.
3) Trade War -- The tariffs imposed on China over the last month could be the beginning of a trade war that could seriously damage the markets. However, if Trump can get China to cut a trade deal that would reduce the trade deficit "Bigly" then we could see markets take off quickly.
4) Volatility -- The VIX has been elevated this year, meaning markets are nervous about something. While some risks are obvious, some are often not seen until they show their ugly face. A high VIX signals there is something beneath the covers.
With the Trump victory, smart money had to reallocate their assets to areas that would benefit from a Trump presidency. This reallocation led to violent sector rotation causing certain sectors to surge.
Let's go over some ETF stats since the election:
S&P 500 (SPY): 30% plus
Consumer Discretionary (XLY): 45%
Health Care (XLV): 33%
Industrials (XLI): 35%
Financials (XLF): 40%
Technology (XLK): 55%
Take note of these ETFs. The sectors that outperformed since the election will continue to perform through the Trump presidency. However, if the risks mentioned above come to light, these sectors will give investors opportunity at discount prices. Buying an ETF might be easy to do when this happens, but finding the right stocks to buy is much tougher.
Buying Stocks on a Dip
Buying stocks has more risk than buying an ETF, but can lead to greater reward. When markets sell off, we can utilize the Zacks Rank to separate the weaker stocks from the profitable ones. By combing the fundamentals of the Zacks Rank and technical analysis, investors can decipher which stocks to buy and which ones to ignore.
In addition, sell-offs tend to be manipulated by computer-driven algorithm trading that can over exaggerate a move lower. An investor who recognizes this abuse can squeeze a couple more percentage points out of a trade than an investor who doesn't.
Since early 2016 we have seen the earnings recession, the Brexit, the election and multiple trade war headlines. Each time that investors bought the dips they have been rewarded handsomely. This should be a recurring theme for the rest of 2018.
How to Fully Capitalize
A major bounce was already seen in the first half of the year and the next three months might lead to some of the biggest market moves of 2018, so why not profit from them?
In addition to the often irrational stock swings created by headlines, there is another force at play that we can use to our advantage.
Computer-driven High-Frequency Traders (HFTs) continue to push down worthy stocks and then profit from the rebounds. We can profit, too.
That is the mission of my portfolio, Zacks Counterstrike.
Counterstrike is designed to sniff out when a stock price is moving the wrong way for the wrong reason. We take advantage by buying the best of these unfairly beaten-down stocks. Then when price moves our way, we lock in gains and look for the next opportunity.
We're now holding a few selected stocks that are primed to sweep upward. Our goal is to generate quick and consistent double-digit gains. Recently, in fact, we've closed gains of +47.0%, +25.1%, and +15.9% in as little as 1 month.
Look into this portfolio today and as an added bonus you may download our Special Report, 7 Stocks Set to Double. It spotlights 7 companies Zacks experts predict could grow +100% or more over the next year.
Important: To maximize the profit potential of our recommendations, we must limit the number of members who have access to the Counterstrike portfolio and 7 Stocks Set to Double. This opportunity ends on Sunday, August 12.
See Counterstrike and 7 Stocks Set to Double Now >>
Wishing you great financial success,
Jeremy Mullin has been a professional trader for more than 12 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.