Keep Sight of Long-term Goals Amid Short-term Noise

Owning shares of defensive, dividend-paying companies whose businesses hold up relatively well in recessions has paid off great since early 2018.

They’ve handily beaten the broader averages, and they’ve absolutely trounced more aggressive, “growthier” stocks.

But I still get occasional pushback from critics. They say these sectors are richly valued ... that they lack the growth potential of other flashier groups ... and are otherwise destined for a sharp fall.

My response? I harken back to those prophetic words of former Bill Clinton campaign strategist James Carville: “It’s the economy, stupid.”

Now don’t get me wrong. I’m not trying to insult anyone who wants to have an intelligent debate about the markets.

But back in the early 1990s, that was Carville’s somewhat crass way of focusing everyone’s attention on the economy.

He believed that if it performed well, employment would rise, wages would climb, consumers would feel better and Clinton would get elected. Turns out he was right.

Today, Carville’s words very much apply to this market. The outlook for the economy truly will determine the next major move in the averages — not to mention which sectors will lead and which will lag.

Why? Take a look at this presentation slide below. It’s one of dozens I’ll be sharing at the New Orleans Investment Conference, which runs from Nov. 1 to Nov. 4 at the Hilton New Orleans Riverside hotel.

Naturally, I’d love to see you in person at the event so we can talk about the market outlook in more detail (registration information is available here if you need it). But this slide is SO important that I wanted to give you a sneak peek here.

The general idea? The economy ebbs and flows, expands and contracts, in CYCLES. Different asset classes and different market sectors perform great at some points in the process ... but terribly at others.

Buy the right stocks at the right time, and you can make a killing. Buy at the wrong time, and you can lose money by the truckload!

I’ve been saying for more than a year that my research suggests this is a late- to end-cycle environment. The economy is slowing, and the risk of recession is the highest it has been since just before the last downturn. The blue arrow highlights which phase I believe we’re in.

Historical data suggests that IF my arrow is on target, consumer staples, utilities and other defensive stocks should be OUTPERFORMING the averages ... while industrials, technology, financial and materials stocks should be UNDERPERFORMING them.

Sure enough, that’s exactly what has been happening.

So, to get back to Carville’s comment, the economy really is the big, long-term driver here. Headlines about Chinese trade deals written in invisible (or no) ink ... not to mention possible Brexit breakthroughs overseas ... can drive short-term market moves.

But if the economy is slumping toward recession in 2020 as I believe, they won’t to amount to much over time. You’ll still be better off in “Safe Money” investments!

Click here to join us over at the Safe Money Report to get market updates and specific “Buy”/“Sell” prices so you can protect yourself as this cycle rolls through.

Until next time,

Mike Larson