Here’s My Playbook for These Increasingly Turbulent Times Mike Larson | Tuesday, September 13, 2016 at 4:30 pm
Week one of the National Football League is in the books, and boy was it an exciting one! My “real” team, the New England Patriots, managed to eke out a win against the favored Arizona Cardinals – and my fantasy football team took home a “W,” too. So I can’t complain.
One of the most interesting things about the first week of the regular season is what team playbooks look like. Most coaches keep new routes, schemes, and star players under wraps in the pre-season so their opponents don’t know what to expect when the games actually start counting. That means there are always plenty of surprises when Sunday rolls around.
The stock market has certainly offered up its share of surprises in the past few days, too. We suffered a sharp, widespread, liquidation-style selloff last Friday. That was followed up yesterday by a sharp bounce, one that gained back a chunk (but not all) of those losses. Then today, we dropped almost 300 points on the Dow Industrials before bouncing ever-so-slightly into the close.
So in an effort to help you sort things out, I’d like to share my “playbook” for this market … the kinds of things I’m planning to buy or sell as a result of the action we’re seeing.
First, I’d be looking to exit emerging-market bonds and stocks. They’ve had a huge run up from the early-2016 lows. But they’re among the most vulnerable asset classes in the market if we do get a Fed rate hike either next week or later in the year.
They’re also radically overvalued under all but the most optimistic global economic assumptions. So don’t let those gains evaporate. Book ‘em today. Sample ETFs would include the iShares MSCI Emerging Markets ETF (EEM) and SPDR Barclays Emerging Markets Local Bond ETF (EBND).
Second, I believe some the newfound U.S. economic weakness stems from sectors that are at the center of this “Everything Bubble” – sectors like autos and commercial real estate.
So I wouldn’t touch stocks in those industries with a 10-foot pole. They’re going to be at the center of any potential market storm. Think of selling ETFs like the iShares U.S. Real Estate ETF (IYR) or the stocks in benchmarks like the NASDAQ OMX Global Automobile Index, which you can find more details about here.
Look out below! The bottom dropped out of the Dow -- now what?
Third, once we get through this bout of turmoil, there are some sectors and stocks I’ll be looking to buy into. Take defense stocks and select infrastructure names. They should benefit from the increased uncertainty and turmoil in the world, not to mention increased spending that could come after the election. Some funds that might be worth looking at include the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ), the iShares Global Infrastructure ETF (IGF), or the SPDR Aerospace & Defense ETF (XAR).
Keep in mind that TOLZ is somewhat energy-heavy, though. The XAR also has exposure to the civilian aerospace market – a market where order-growth could slow if demand and profit trends don’t improve in the airline industry. A better approach would be to go through the holdings in those kinds of ETFs, scrub individual names using our Weiss Ratings system, then just buy the best of the best.
Lastly, I would encourage you to wait to do substantial bottom-fishing until the timing and pricing is right. We literally have only seen three days of increased volatility after many, many weeks of unnatural calm.
I believe patience will be rewarded, and that this isn’t (yet) the time to jump in with both feet. But if you’re looking for more detailed recommendations, as well as specific buy and sell advice, the best place to find it is my Safe Money Report.
So what’s your take? Do you think the “buys” and “sells” I just discussed are good ones? Do you have other ideas or strategies you’re taking advantage of? Are we due for a much more significant decline here? Or do you think the turmoil is almost over? Let me know on the website.