Wall Street’s Exodus
Stocks were down again last week, with the exception of utility stocks and gold mining shares.
The pain was more palatable, with the Dow falling only 288 points and may even feel like welcome relief after the quadruple-digit losses we’ve witnessed over the past month.
For the period the Dow dropped 1.2% while the Nasdaq held up somewhat better, finishing off less than 1%.
That all said, several extreme swings ago I spotted signs of a sizable rebound rally.
Don’t Quit Now!
Two bright spots last week indicate a sizable oversold bounce could be in the making.
Namely, retail investors are throwing in the towel and are jumping out of the markets like lemmings will jump off a cliff.
But from a contrarian point of view, that’s a big potential buy signal.
First, the American Association of Individual Investors (AAII) survey of bulls fell to 20.9%, which is the lowest reading since May 2016. Plus, the number of pessimistic bears jumped to 48.9%. That’s the worst reading since April 2013!
Second, stock funds just had the biggest weekly outflows of money ever recorded, according to Lipper Mutual Fund data. Investors withdrew a whopping $46.2 billion, mostly by mom and pop investors.
Here’s the Good News
This kind of panic selling by the public typically marks a tradeable bottom for stocks and a sharp rebound rally often follows.
Historical data shows us after this kind of extreme selling the S&P 500 rallied every single time over the next three, six and 12 months.
More specifically, stocks were up 13.8% on average over the following six months and gained a whopping 23.6% over the next year!
Bottom line: We have very strong odds of a powerful rally, and I’ll be on the lookout for more evidence that it’s developing.
In the meantime, take additional measures now by placing some bets on some defensive plays like the ones I suggested over the year in previous Wealth Watch issues, including:
- Merck & Co, Inc. (NYSE: MRK), up over 34% since I first suggested it to readers back in February.
- Church & Dwight (NYSE: CHD), up over 31% since also first suggesting this stock February.
- Procter & Gamble (NYSE: PG) is another big winner, up over 27% since suggesting it to you in early May.
And did you know these companies pay strong dividends of 2.96%, 1.33% and 3.10% respectively?
Bottom line: Consumer staples… The “riches in your kitchen” is the play right now.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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