The vote is nearly here, and in four days we’ll know who has become the next president of the United States. I don’t know about you, but I am glad the drama is nearly over.
When the outcome is known next week (barring any 2000-like contested election situation) it will be time to get back to making money the old-fashioned way, and that is by identifying the best sectors likely to deliver strong upside in the months to come.
The way I see it, there are three key trends on tap for markets as we near the end of 2016 and embark on the new year. Here is a rundown of the “Big 3” likely to shape our investment directions going forward.
1) The Math for Bonds is Bad
Bonds have had a great run, there’s no doubt about it. Yet the math for bonds going forward does not look favorable for investors. That’s because we are entering a rising interest rate environment, one that will pressure bond prices going forward.
What this means is that bonds will no longer offer the kind of price appreciation they have in the past. All investors are likely to see from bonds is the coupon, which is a yield of about 2-3% depending on the bond.
Given that inflation is running at about 2%, the math here just will not get the job done for most investors.
2) Investors are Under-Allocated to International Stocks
The domestic markets have led the way higher in recent years, but that isn’t likely to be the case going forward. Tepid U.S. economic growth, a Fed intent on hiking rates and a stock market that is overvalued here means that the smart money is likely to seek alpha outside of America.
The most logical place for capital to flow to is emerging markets, as the growth metrics in other countries are far better than those here at home. Plus, many of these markets still have accommodative central banks.
Perhaps most importantly, most investors are still under-allocated to international stocks. When this allocation disparity gets corrected, we are liable to see big gains in sectors such as emerging markets.
3) More Sector Bets
Many investors have stuck with index investing on the S&P 500 and other broad-based indices in recent years. And that has worked well for many. However, next year is likely to be different, as investors are going to have to make more focused bets on specific sectors of the market that are liable to outperform.
One sector I like as a rebound play going forward is health care. This segment has taken some hits on fear of political crackdowns on drug pricing, and even price collusion lawsuits from the Justice Department. Yet the aging demographics here at home, and in places such as Japan and Europe, will continue driving strong demand for health services, drugs and other medical devices… and I think that will help drive biotech stocks higher in the months and years to come.
These three trends aren’t the only ones I am watching here, but they are going to be part of the lens with which I view the markets going forward.
If you’d like to look through that lens with me, then I invite you to look at my Successful ETF Investing advisory service, right now.
I am happy to announce that Mike Turner has joined the Eagle Financial Publications family. Mike and I sat down for a short discussion about investing that you can listen to by clicking here now.
In this interview, you will get to know Mike better and learn a few other things, such as:
- Why most people buy and sell stocks at the wrong time
- Mike’s 10 Rules for Investing that everyone should know
- Why Bloomberg put Mike’s investing “Tools” product on more than 330,000 of its computer terminals
- And lots more!
Listen to Mike’s insights on the markets by clicking here now.
“People never lie so much as after a hunt, during a war or before an election.”
— Otto von Bismarck
The first chancellor of Germany was a politician extraordinaire, so who better than to remind us that the hyperbole, exaggeration and downright lies are at their highest right before an election. The more things change, the more they stay the same.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.
In case you missed it, I encourage you to read my e-letter column from last week about the signals the bond market is sending to investors.