Is it safe to buy stocks right now?
Did you feel markets might freak out over the US election? Most of us felt some unease. As a result, a lot of nervous cash is sitting on the sidelines. But not for long.
More importantly, control of the Senate and future stimulus plans fuel investor anxiety.
Runoff elections will decide the winner of two Senate races in Georgia, according to an article by booking.edu. In reality, can the GOP and Democrat’s work together? So far the market has responded positively to the political landscape. This is good for stocks.
What about the fiscal stimulus package Trump shelved? The IMF sounded the alarm calling the US stimulus package ‘crucial’. The question remains, when will we get it and how much will it be?
Regardless of the politics and government spending, the Federal Reserve has the stock markets back.
Quantitative easing and asset purchases by the Federal Reserve are up and running. These programs will continue indefinitely fueling the stock bull market.
That’s great and all, but is it safe to buy stocks right now?
A tough question indeed. The answer is right in front of you.
Take a look at the S&P 500 index ETF (NYSE: spy) price chart. Look at the gap up in price yesterday!
That kind of price movement signals a sector rotation trade is underway.
But which sectors are attracting buyers?
With this in mind, a few sectors stand out. Namely, the financial and energy sectors.
In fact, a bull market in stocks cannot exist without the financials participating (NYSE: xlf). Look at the XLF gap up in price yesterday!
Clearly, traders tipped their hand and signaled that capital is heading into the lagging financial sector. This is a strong case to be buying stocks right now.
Now let’s check out the energy sector. Once again, look at the XLE gap up in price yesterday!
As with financials, this is another example of traders buying a beaten down sector. Not surprisingly, the oil field services sector also witnessed heavy buying. Again, buyers are looking to put cash to work, even out of favor sectors are attracting buyers.
Which sector is the money coming from?
For one thing, money leaving the bond market (NASDAQ: tlt) is the catalyst behind the bull market in stocks. Fortunately the Federal Reserve is buying all government bonds for sale. It’s a perfect out as bonds offer a negative real return. Look at the TLT gap down in price yesterday!
To be clear, money is leaving the bond market in a big way. Investors cannot exit the bond market fast enough. All this money will find its way into the stock market. This sector rotation is just getting underway and could last for years.
What about red hot technology stocks?
In simple terms, the technology sector is taking a breather. From a technical perspective, technology investors are waiting to increase their buying. After all, stellar earnings back up their bull move higher. Look at the chart below (NYSE: xlk) and tell me what you see? I see a market building a base.
Conclusion
Is is safe to buy stocks right now?
The short answer is YES!
Why? Because bonds offer a negative real return. A guaranteed loss. On the other hand, stocks offer the potential for a positive real return. For this reason, you should be buying stocks. And bonds are a tool of wealth confiscation by inflation.
Remember, stocks are in a bull market!
