The Economy is Opening Back up… Now What?
As of this week, every single state in the U.S. is at some point in the process of opening back up.
Some states are lifting “shelter in place” orders. Others are allowing small businesses like salons and fitness gyms to open back up.
Everywhere you look, people are venturing out and trying to figure out what the “new normal” is going to look like in the wake of the coronavirus crisis.
As you know, there are a lot of mixed emotions. Some people are very excited to re-engage with their community. Others are fearful of a second wave of infections. And many are frustrated with the new challenges of living life with the constant reminders that coronavirus still poses a risk.
Of course, investors have many of these same mixed emotions as the economy picks back up. There are pockets of excitement, areas of fear, and potential risks to avoid.
Today, I want us to talk a bit about how to safely navigate this economic recovery in your investment account. That way, you can protect and grow your retirement wealth regardless of how well this reopening goes.
Taking Stock of Where We Stand
Before we can know how to navigate the future, it is important for us to first take a look at where things stand in the market right now.
The initial panic when the coronavirus pandemic hit the U.S. caused major challenges for all investors. Stocks in nearly every industry traded sharply lower, and a tremendous amount of wealth was lost.
But after a few intense weeks of selling, the overall U.S. stock market found its footing.
The Fed effectively cut interest rates to zero and pumped a tremendous amount of cash into our financial system. Meanwhile, the government quickly created stimulus packages that shelled out trillions of dollars to individuals and businesses.
All of this cash helped to dull the effect of shutting down the economy. And it gave investors confidence to step in and buy stocks.
Today, the broad markets have made back more than half of the ground that was lost when the crisis first hit. And a few very influential stocks like Facebook (FB), Amazon.com (AMZN) and Tesla Inc. (TSLA) (just to name a few) are at or near all-time highs!
Meanwhile, hopes are currently very high for some of the treatment and vaccine candidates that are currently in the testing phase.
This optimism has been flowing into the financial markets, helping to give investors more confidence to add to the positions that have been working since mid-March.
And that’s basically where we find ourselves today, heading towards Memorial Day weekend and the traditional start of summer.
A Different Path for Different Stocks
There’s an old proverb on Wall Street that rings true time and time again.
“Buy the rumor, and sell the news”
The idea is that stocks typically move steadily higher on rumors that something good is going to happen. This often occurs before an earnings report for a specific company, or sometimes ahead of an economic report that should be good for the broad market.
Investors buy positions in anticipation of the news being good. And their intention is to sell the positions once that good news is announced. (Of course, they’re banking on the fact that the good news will send the stocks they own higher — giving them a chance to cash out with a profit.)
Ironically, most of the buying happens before the news is announced. And once the great news is made public, investors move on to the next opportunity that they’re interested in.
All of this selling can cause the opposite reaction in the market from what you might expect.
Following the good news, the stock (or the entire market) moves lower. It’s simply a function of investors acting ahead of the news and then moving on after the news.
My concern is that we may see this exact same reaction for speculative stocks that have moved to new highs over the last few weeks.
Investors who have been confident that the economy will reopen, that we will find a vaccine, and that our markets will recover have already made their investments.
And once the good news of our reopening becomes apparent, those investors may sell some of their speculative positions to lock in profits.
Buy the rumor, sell the news…
It’s a risk for certain areas of the market that have moved too high too quickly. And if you’re currently holding shares of very popular stocks that have ramped sharply higher, you may want to go ahead and take some profits off the table now — before other investors start selling.
But I want to be clear here… Not all stocks are vulnerable to a selloff right now.
There are some key areas of the market that have not moved too far too fast. And these areas should continue to help you grow and protect your wealth even if the more popular stocks start to move back lower.
Let’s take a look at those areas so you can focus your investments on the safest and most lucrative stocks heading into the summer.
Three Areas That Will Continue to Advance
As the U.S. economy begins the tedious process of reopening society and rebuilding the economy, there are a few areas that you should be heavily invested in.
First, companies with very reliable (even boring) businesses will hold up better than the rest of the market.
Think about consumer staples companies that sell products in good times and bad. These businesses will continue to generate reliable profits — and they’ll continue to pay investors lucrative dividends.
With interest rates for savers hovering near zero, these reliable dividend payers will become all the more popular with investors. And if you already own shares now, you’ll benefit as other investors start buying in earnest.
For this category, I would recommend companies that make everyday items like tissue, soap, food staples and other household items. You should also look at home improvement companies that pay reliable dividends. We’ve seen their businesses hold strong throughout this crisis.
Second, I would stay very attentive to the Work From Home (or WFH) stocks. These include technologies to help businesses stay connected with their employees, and of course the 5G stocks that we’ve been following closely here at The Daily Edge.
Remember, 5G was already an important theme for the economy before the coronavirus crisis hit. But now that more people are going to be working from home, the importance of this new level of connectivity is even more critical! So you’ll want to stay invested in this key area of the market.
Finally, I want you to keep a portion of your wealth invested in precious metals.
This could mean buying physical gold and silver. It could also mean investing in gold through the SPDR Gold Shares (GLD). And of course, you can also invest in the gold mining companies that will profit from a higher price for gold.
Thanks to the tremendous amount of cash being pumped into our economy, I expect to see gold prices surge to $3,000 by the end of the year.
That kind of surge gives us a great opportunity to profit from the trend, which in turn will allow you to protect the true value of the nest egg you’ve worked so hard to save.
I’m hopeful and optimistic when it comes to the reopening of our economy. I can’t wait to see how our country rises to face this challenge and get back to a more healthy economic place.
And I can’t wait to hear how you navigated this market safely, building wealth for your family and even making some good memories along the way.
Here’s to growing and protecting your wealth!