Market Winners and Losers — Where Do You Fall?
There’s a subtle shift going on in the market right now.
One that you won’t pick up on if you read the Wall Street Journal or spend the afternoon watching CNBC.
But if you look at the details that I’m about to show you today, you’ll see how to take advantage of this subtle market change. And over the next few weeks as this shift plays out, you’ll lock in bigger profits and protect yourself from the chaos that is overtaking our markets.
Let’s take a look!
It’s a Market of Stocks, Not a Giant “Stock Market”
“So do you play the stock market?”
That’s the question I got from my Uber driver last week when I mentioned that I was an investor.
Without waiting for an answer, he proceeded to tell me about how he got into the market when Trump announced the new tariffs last week, and then got out a couple hundred points lower.
“I took a bath, but I’m learning… Pretty soon, I’ll be a successful day trader!”
I didn’t have the heart to tell him how difficult the day trading business is. Or how simply investing in “the market” was a near-certain way to avoid success.
But the conversation did bring to mind a recent shift that we’re seeing in the market.
Lately, investors have been working with a market of stocks instead of simply entering or exiting the “stock market.”
The difference is subtle. But it’s extremely important.
Over the last few weeks, we’ve seen investors take a lot more care in which stocks they put their capital into. That’s a lot different from earlier this year when most investors were simply buying shares of SPY (which covers the entire S&P 500), or shares of QQQ (which is a fund that covers the top 100 NASDAQ names).
I love it when we see more discretion in how investors put their money to work.
Because it means that those of us who have done our research, picked out solid companies with healthy balance sheets and invested in the names that actually have quality operations… we’re left watching our investments trade higher as other investors scramble to find the best stocks!
Meanwhile, the more risky stocks with questionable business practices or sky-high valuations are trading lower.
The good news is that if you’re positioned well in this new “market of stocks,” you’ll see your wealth continue to grow as investors buy shares of your companies and push your stock prices higher.
On the other hand, if you’re invested in the vulnerable stocks, you could be in for a rude awakening in the second half of this year.
Let’s take a quick look at the winners and losers in this shift.
Losers: Speculative Stocks with High Popularity
Unfortunately, some of the most popular stocks on Wall Street also carry the most risk.
I’m talking about companies that many people are familiar with (Amazon, Tesla, Netflix, Uber — just to name a few).
These stocks have been pushed to higher levels because people are familiar with the names and love the products these companies produce. In some cases, the businesses are stable and in others the businesses have some significant risks.
But because of their popularity, the stock prices have moved to unsustainable levels. Eager investors have bought at any price and now the stock prices don’t actually tie in with the earnings these companies can generate.
This is all well and good as long as new investors continue to buy shares and push the stocks higher.
But once we have some turbulence in the market and investors start to take a closer look at what they own, the situation can unravel fast!
Today, shares of many speculative stocks are trading lower. And that’s causing some of the panic we’re seeing in the market.
Hopefully, you’re not all that affected by the panic. Because you own stocks of great companies. And you bought those shares at a reasonable price.
Which brings me to the other category of stocks we’re looking at today.
Winners: Profitable Companies with Generous Dividends
On the other side of the market, you have companies that are generating reliable profits, and paying good dividends to investors.
Sometimes people consider these stocks “boring.” Because they don’t swing up and down sharply and you won’t likely double your money in a three month period.
Ironically, many of these stocks are actually trading higher in today’s market. And these stocks actually give you more positive action than the popular stocks that are now falling out of favor.
Dividend stocks are especially popular right now because interest rates are falling sharply.
As treasury bond yields fall and interest rates around the world actually turn negative, there is a giant wave of capital moving into areas of the market that provide income.
And the best place for this capital to go is into dividend stocks of companies that have reliable businesses.
This week, we’ve actually seen an acceleration in the global trend of lower interest rates.
This should naturally lead to an acceleration for dividend stocks, leading to bigger returns for these plays over the next couple of months.
So instead of being “boring” or “stable,” dividend stocks are more likely to be the momentum plays of the year, giving you a great chance to lock in gains and grow your wealth.
In today’s market, don’t get stuck buying a fund that mimics the S&P 500 — or worse, buying shares of the popular stocks.
Instead, focus on where the biggest waves of investment dollars are flowing. And lock in your gains as big buy orders drive these stocks steadily higher.
Here’s to growing and protecting your wealth!