The Stock Market Finally Sold Off. Should You Be Worried?

Wednesday, July 21, 2021

Blue Origin pulled off a successful rocket launch this week, adding Jeff Bezos to the “Billionaire Astronaut Space Club” list alongside Richard Branson.

The stock market, on the other hand, failed to launch. Indeed, it just tumbled back to Earth, with the Dow Jones Industrial Average shedding 300 points on Friday before suffering its worst drop since October on Monday.

So, what happened? Why was there so much excitement in Texas ... but so little in New York? And, more importantly, what does the sell-off say about the future, especially now that we got quite the “Turnaround Tuesday?”

First, the stock market has been getting “narrower” for a while. In plain English, the major averages have been rising thanks to the performance of a handful of very large, widely held stocks. But fewer and fewer stocks have been participating in the advance behind the scenes.

This left markets vulnerable to a volatility spike.

Just look at the performance gap between something like the iShares Russell 2000 ETF (NYSE: IWM, Rated “C”) and the SPDR S&P 500 ETF (NYSE: SPY, Rated “C+”). The more diversified, smaller-capitalization IWM is up roughly 1% over the past three months. Meanwhile, the more concentrated, larger-capitalization SPY is up about 7%.

Second, worries about the Delta variant of COVID-19 have taken a lot of steam out of the “reopening” and travel trades. For instance, the U.S. Global Jets ETF (NYSE: JETS, Rated “D”) that owns shares of all the major U.S. airlines and several foreign ones dropped 7% in the last month.

Third, concerns are still festering in the background about the Federal Reserve. A handful of Fed speakers said recently that they want to start the tapering discussion. The Fed is currently buying $120 billion in mortgage and Treasury bonds each month.

But does this week’s action mean the market is going to fall apart? Are these forces going to give us anything more than a modest correction?

Put me in the “no” camp for now ... and I would’ve said the same thing even if markets didn’t rally back yesterday. Here’s why ...

For one thing, the Delta variant shouldn’t result in anything like what we saw last year. Tens of millions of people are vaccinated now, which will keep a lid on cases and reduce the severity of any infections. There’s also little appetite for the reintroduction of widespread, 2020-style restrictions on business activity and consumer mobility.

For another thing, this Fed is extremely unlikely to slam on the policy brakes, regardless of the latest troublesome inflation data. Why? This group of policymakers is perhaps the most beholden to the markets I’ve ever seen. They won’t take away Wall Street’s “free money” punch bowl unless they absolutely, positively have to.  

Bottom line? The sell-off isn’t a reason to panic. I’m still bullish on highly rated, income-generating stocks and other yield-oriented investment strategies. I’m still bullish on precious metals and miners.

I’m also still excited to share more details with you about those in the months ahead, including in person at the MoneyShow Las Vegas. The conference runs from Sept. 12-14 at the Bally’s/Paris Hotel.

My schedule has been expanded to include two presentations now — with one each focused on those two kinds of opportunities. Here are the times and details:

•  Windfall Income and Profit Strategies for a World Gone Mad
Monday, September 13, 2021 | 5:15 pm - 6:00 pm EDT

•  Gold: The "Forgotten" Asset You NEED to Own!
Tuesday, September 14, 2021 | 1:30 pm - 2:15 pm EDT

And here is the link you can use to get more details and register.

I hope to see you there!

Until next time,

Mike Larson

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