This Is What’s Supposed to Happen to Stocks

Reading some of the half-baked stories from the lame-stream financial media sometimes makes me cringe.

Case in point, take this recent headline from CNBC:

The Wrong Kind of Stocks Are Leading the Stock Market to Records

The article goes on to point out, correctly, that high-quality defensive stocks are leading the S&P 500 rally to new highs.

These include leading companies in the Health Care and Consumer Staples sectors, as CNBC notes:

Investors are increasingly flocking to one of the safest pockets of the market — defensives.

This is true, but then the article goes off the rails. It incorrectly concludes that somehow this is a negative sign that imperils the market rally.

Why These “Market Experts” Have It All Wrong

The article goes on to lament the fact that “growth and more cyclical names — tech, communication services and consumer discretionary — have started to show signs of weakness.”

The implication here is that’s a bad thing, but nothing could be further from the truth.

chart

In fact, longtime Wealth Watch readers know I’ve written numerous articles pointing out that this type of rotation from growth and higher-risk stocks to quality, value and low-risk stocks is EXACTLY what is supposed to happen at this stage in the market cycle.

As I pointed out last week, the bull market in stocks is more than 10-years old and the S&P 500 has gained over 350% along the way. It’s the second-longest and second-strongest bull market of all time.

And that means we’re getting a bit late in the ballgame.

That does NOT mean you should cut and run, selling your stocks now. The late innings of any bull market typically offer the strongest stock gains.

What it DOES mean is that you should now place a premium on owning the highest-quality dividend-paying stocks.

My Favorite Sectors and Tickers

Many of these are found in defensive sectors including health care and consumer staples. However, you can’t paint all stocks in a certain sector with the same brush.

There are many high-quality dividend-paying stocks to be found in the more cyclical sectors too.

One of my favorites right now is Technology, but think of big, quality stocks like Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL) and IBM (NYSE: IBM), not smaller, riskier names.

Another favorite with many high-quality and undervalued stocks is the Industrial sector.

Again, stick with names everybody knows such as: United Technologies (NYSE: UTX) and Lockheed Martin (NYSE: LMT).

Bottom line: Be careful what you read from the financial media sites and don’t jump to the wrong conclusions like these writers often do.

Instead, look at the hard data on what’s working best in the market right now and what has worked well in the past at this point in the cycle. That way, you’ll always be on the right side of the market.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick

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Mike Burnick

Mike Burnick is the editor of Mike Burnick’s Wealth Watch, Infinite Income, Amplified Income and Millionaire Moments. Mike has been bringing his trading strategies to the masses for over 30 years. He has been with Seven Figure Publishing since 2017. In 2018, the average return of Infinite Income beat the...

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