This morning I received an inquiry from a subscriber (thank you, Scott M.) who asked me what I thought would be the market bottom on the Dow Jones Industrial Average.
Here’s what I told him in response:
“A numerical value on a Dow bottom is nearly impossible to peg with any real certainty. That said, it would not surprise me to see the Dow fall much more from here. If we had another 10% pullback from the current value of 30,395, it would put the Dow at 27,355. And considering we’re down about 17% from the all-time high here on the Dow, another 10% down would be well within traditional bear market metrics.”
Yet what I also told him is that perhaps the more important question is when the market will bottom, and what events would cause a market bottom. Here I referred to my “Three Keys to a Bottom,” which are the brainchild of my “secret market insider” that I partner with to bring you my daily market briefing, the “Eagle Eye Opener.”
Here’s the most-recent analysis on the “Three Keys to a Bottom.” Unfortunately, none of these factors has been triggered yet.
Last week, stocks fell to new 52-week lows (as measured by the major domestic indices). So naturally, the question here becomes, “When will this market form a bottom?”
Of course, nobody knows that answer definitively, but what we can say is that there are several key events that need to happen before we can expect to see any real bottom in stocks. Let’s take a quick look at each of these three keys to a market bottom.
1) Chinese Lockdowns Ease and Growth Recovers. Chinese authorities are hesitant to admit they’re wrong about the pernicious zero-COVID-19 policy, so we can’t expect them to publicly abandon it. Yet in recent weeks, the Chinese government relaxed lockdowns in Shanghai and Beijing. Unfortunately, they reimplemented some of the restrictions at the first sign of a few COVID-19 cases. If the Chinese can finally abandon this policy, markets can start to breathe more bullishly when considering global economic growth.
2) Inflation Peaks and Declines and the Fed Eases Off. Based on the latest Consumer Price Index (CPI) data, the idea that inflation has peaked has yet to come to fruition. However, CPI is a backward-looking indicator. If the Fed’s recent rate hikes can start to put a dent in inflation, that peak might not be too far away. If that happens, and if the Fed starts to be a bit less hawkish than it has been recently, and we saw some evidence of that at the June Federal Open Market Committee (FOMC) press conference, then stocks can begin to form a bottom.
3) Geopolitical Tensions Decline. Understanding what “improvement” will look like in the Ukraine war is very difficult, and at this point a ceasefire remains unlikely. The conflict now seems to be devolving into a stalemate that could last for months, quarters or even years more. The war is a tremendous human tragedy, but from a market standpoint it’s the spike in commodities that’s causing headwinds on earnings and increasing the chances of a global recession. The bottom line here is this situation needs to improve before we can see a real bottom in stocks.
So, there you have it, my assessment of what it will take for stocks to make a material bottom, and for the overwhelming bias in the stock market to go from bearish to bullish (or at least back to neutral).
P.S. If you’d like to get this kind of expert market analysis delivered to your inbox every trading day at 8 a.m. Eastern, then I invite you to check out my daily market update, the “Eagle Eye Opener.” The way I see it, if you aren’t subscribing to this publication, then your market eyes aren’t fully opened. And as a thinking investor, you know that when you fly with impaired vision, it’s really easy to crash.
ETF Talk: Invest in ‘Noble’ Dividend Payers with This Fund
Investing in companies that pay strong and consistent dividends has long been a tried-and-true investment theme, particularly for those seeking stability and consistent payout.
These companies often perform better in difficult market conditions, such as those we face today because of economic issues in the United States and geopolitical events. One way to pursue this strategy and take the theme of stability and consistency to another level is with S&P 500 Dividend Aristocrats Fund (NOBL).
The S&P 500 Dividend Aristocrats are companies that have increased their dividends for at least 25 consecutive years. Some of these companies have maintained rising dividend policies for significantly longer than that. Companies that achieve this status are typically safe, steady household names with solid fundamentals. They may not be the ones you see making headlines, but they have been quietly performing for decades. That’s what you’ll find in this exchange-traded fund (ETF).
Over the last 12 months, NOBL is up 1.67%. That may not sound like much, but in the current market environment, it is noteworthy. Its distribution yield sits at 1.54%, but if the companies held by the fund maintain their policies, investors can expect their effective yield on an initial investment to increase over the years. The market cap of this fund is $90 billion, and its expense ratio is a reasonable 0.35%.
Chart courtesy of www.StockCharts.com
Top holdings for NOBL include Albemarle Corp. (ALB), 1.90%; Amcor Plc (AMCR), 1.82%; Exxon Mobil Corp. (XOM), 1.82%; Brown Forman Corp. (BF/B), 1.79%; and IBM Corp. (IBM), 1.76%. There are 64 positions in total, with each accounting for more than 1% of assets.
Top sectors include consumer staples, industrial, financials materials and health care, with the other major sectors represented but well behind the top five.
For investors seeking relatively safe U.S. equities and interested in getting paid to hold them, S&P 500 Dividend Aristocrats Fund (NOBL) may present an attractive investment opportunity.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
In case you missed it…
Kevin O’Leary Enters My Shark Tank
Cryptocurrencies are getting crushed.
Consider that Bitcoin, the largest and most heavily traded cryptocurrency, has plummeted 26% over the past five trading sessions. That is an astounding decline in such a short period, and it illustrates not only the inherent volatility of this asset class, but also the precarious nature of putting money to work in this still-nascent market segment.
Yet despite the decline in cryptocurrencies of late, the sector remains populated with high-profile investors who see huge opportunity in the space going forward. One such investor is “Mr. Wonderful” himself, Kevin O’Leary.
I suspect you know Kevin O’Leary from his starring role in the CNBC show “Shark Tank,” a favorite TV program of mine, and of just about every entrepreneurial type that I know. Yet O’Leary is far more than just a TV “shark.” He’s also the creator of the O’Shares family of exchange-traded funds (ETFs), several of which I have recommended in my newsletter advisory services.
One of O’Leary’s newest ventures is a company called WonderFi, a cryptocurrency trading platform that Mr. Wonderful says will provide a compliant and transparent place for institutional and individual investors to trade cryptocurrencies.
According to O’Leary, what Bitcoin and other cryptocurrencies really need to flourish is, ironically, real industry regulation. And as he puts it, “that’s when the real money is going to come into it.”
O’Leary explained all of this to me in the latest episode of the Way of the Renaissance Man podcast.
In this interview, Mr. Wonderful enters the Renaissance Man shark tank, as I let him “pitch me” on the reasons why investors should consider WonderFi.
Along with WonderFi CEO Ben Samaroo, O’Leary explained that despite the hype of cryptocurrencies, the big money players such as pension funds and sovereign wealth funds have yet to embrace the asset class. He also attributes cryptocurrency volatility to the relatively small amount of money invested in the asset class relative to stocks, bonds, commodities and other currencies.
This interview took place on the cusp of an interesting time for cryptocurrency, as the huge June 2022 swoon in the price of Bitcoin and other cryptos has rattled investors, along with many companies in the industry.
So, is there a future for Bitcoin and cryptocurrencies? Is there likely to be a rebound in the segment? If so, could the catalyst be what O’Leary thinks it will be?
To find out the answers, and to decide for yourself, I invite you to watch/listen to the new episode, “Investor Kevin O’Leary Enters the Renaissance Man’s Shark Tank,” today.
How Does It Feel?
How does it feel?
How does it feel?
To be on your own
Like a complete unknown
Like a rolling stone…
–Bob Dylan, “Like A Rolling Stone”
The iconic Bob Dylan classic “Like a Rolling Stone” wasn’t part of the set list on Monday night when I saw the legendary performer bang out more than a dozen songs over an approximate 100-minute performance at the Terrace Theater in Long Beach, California. Instead, the 81-year-old troubadour played mostly songs from his newest album, the 2020 release “Rough and Rowdy Ways.”
Your editor at the private, pre-concert Dylan bash.
I hope that if I reach age 81, I am still doing what I love with the vibrance and energy that Dylan displayed. And I hope I am challenging myself and my audience by putting out new and interesting material in the digital pages of this publication and my newsletter advisory services. So, here’s to Bob Dylan. May your artistry and personal example be an inspiration to us all.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that 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 newsletters, seminars or anything else. Click here to ask Jim.