Stock Valuations are Causing Anxiety on Wall Street
The market’s incredible bull run over the past year have many believing that the momentum won’t last much longer.
Even though the world has been suffering through the worst pandemic in more than 100 years, you’d never know it by looking at the S&P 500.
Since the lows of March 2020, the market has been climbing steadily for almost a year now – up more than 75% since that time.
As we’ve discussed before, much of that momentum has been driven by a tsunami of stimulus and new investors entering the market, not an economy that’s firing on all cylinders.
Which has led to a bunch of analysts and talking heads warning about a building market bubble that’s poised to pop.
So should you believe the predictions, get your money out of the market, and head for the sidelines?
Let’s take a look at the reasons why a market correction could be in store this year…
Where’s the money?
The first thing everyone looks at when sniffing out a bubble is valuations. And in this metric, there is cause for concern.
Stock valuations overall are at the highest they’ve been since the dot-com crash of the early 2000s. Other instances of the S&P 500 having as inflated a price/earnings ratio as it does now include the COVID-19 crash of 2020 and the Great Depression.
Clearly, that does not bode well for a continued bull run.
The other major concern on the minds of Wall Street analysts has to do with Treasury bond yields and the housing market. Typically, mortgage rates and the yield of the 10-year Treasury bonds have been closely correlated.
But as the 10-year Treasury rate has moved up recently, alarm bells have begun to ring. Mortgage and refinance rates have been at historic lows during the pandemic, which in turn has led to increased demand for housing loans and real estate.
But a spike in mortgage rates could throw a massive wrench in a sector that’s been one of the few bright spots during the last year.
Throw in some ominous warnings from Chinese market analysts, and we could have a full-blown panic on our hands in the near future.
While there may be little that can be done to prevent a significant market correction at this point, having the right mindset going into it can help you reap big rewards in the end.
I’m not saying a market crash is definitely going to happen, but here’s how I intend to play it if it does…
How do I get some?
Bubbles are meant to be popped.
And a number of stocks may be giving us a sneak peek at what’s to come.
We’ve already seen a lot of companies with high growth getting crushed lately – such as Li Auto Inc. (LI), XPeng Inc. (XPEV), and Virgin Galactic Holdings, Inc. (SPCE).
I think if we do see rates creep up to around 1.9%, we will see the stock market continue lower. But I think that those pullbacks should be bought.
I see the potential for 15-20% downside, but not much more than that. On the pullback, I like quality stocks with proven track records such as Apple Inc. (AAPL) and Alphabet Inc. (GOOGL) much better than chasing these crazy SPAC names.
Here’s What the Talking Heads are Missing…
The potential for a market correction is clear to just about any analyst or experienced investor that looks at the current state of the market.
But my colleague Tom Gentile has spent his career uncovering unique and extremely profitable patterns in the market that virtually no one else can see.
And after spending 10 years and millions of dollars refining his system, Tom wants to show you how to apply those patterns to a series of trading strategies that have given his followers the chance to collect huge profits.
Trust me when I tell you that Tom’s proven, affordable, easy-to-follow strategy is something you have to see for yourself.
Click here to learn more about Tom’s incredible Fast Fortune Club research service.
In the Spotlight: Stay at Home Stocks are Now Swimming Against the Current
Despite dropping a stellar earnings report on Monday that smashed expectations for both revenue and EPS, shares of Zoom Video Communications, Inc. (ZM) fell by more than 6% yesterday.
It may well be the result of profit taking as investors see the potential for reduced demand as the world rounds the corner on the pandemic.
I’m going to be closely examining the stay at home stocks that have thrived over the last year to identify which companies stand the best chance of continuing to succeed even after life returns to a degree of normal. Stay tuned.