At this time the XLE energy sector EFT is looking attractive. Stock market corrections come and go. Usually they are sudden and catch investors off guard. Fortunately, for those that can keep a level head, opportunities will present themselves.
As always, the Ultimate Investor Update covers the big 3 sectors: F/X, bonds and stocks.
Here you will find all the information you need to get a handle on the markets.
F/X
Not surprisingly, The Washington Post detailed the massive $1.9 trillion stimulus package approved by Congress. As a result, the US dollar is headed lower once again.
As lawmakers parade around dishing out high fives, the outcome of a weak US dollar can be summarized as follows:
- higher gasoline prices
- loss of purchasing power and higher inflation
- fuel for the stock bull market
- bull market in commodities
All in all, the $1.9 billion US dollars created out of thin air will result in higher stock prices. Regardless, bond investors will continue to be robbed blind by inflation.
Bonds
Higher US Treasury yields ushers in two problems:
- competition to stock dividend yields
- expose an inept Federal Reserve
The stock bull market faces tougher competition as treasury yields inch higher. As a result, investors begin to view bonds as more attractive compared to stocks. My post titled The Great Interest Rate Differential covers this phenomenon in detail. In any case, the stock market does not like higher bond yields, so be careful.
Stocks
Stocks hit a bumpy patch during February. As mentioned above, this is a direct result of rising bond yields. For now, the stock market is tolerating higher bond yields. But, competition is heating up between bonds and stocks.
All things considered, stocks still have room to rise further. In the meantime, a quick look at yields across several sectors will highlight the probability of stock rising.
- 1.62% – US 10yr Treasury
- 1.45% – S&P 500 Stock Index
- 1.74% – XLF eft financial sector
- 4.06% – XLE eft energy sector
Conclusion
As shown above, the XLE select energy sector ETF yield is 150% higher than US treasuries. In fact, if inflation is running a 2%, this sector offers excellent value relative to other sectors. Simply put, expect investors to continue to bid the price of energy shares higher in the coming weeks and months.
Are you looking for opportunities to buy quality stocks, then checkout my Ultimate Portfolio + page for ideas.
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