Stocks traded substantially lower on Tuesday, as President Obama signed into law the biggest government spending plan since the 1930s.
Although the president would like you to believe that the spending plan is an economic “stimulus” plan, it’s really a socialistic spending plan that will do little to stimulate the U.S. economy.
Equity investors are well aware of that fact. That’s the reason they exited the equities market en masse on Tuesday.
However, the risk of stocks falling substantially lower than their current levels is limited due to the fact that stocks are currently trading at bargain prices relative to their long-term earnings capacity. I therefore expect stock prices to trade sideways over the next few months.
Meanwhile, the expected earnings yield for stocks, relative to yields on bonds, is currently near its highest level since January 1973. That’s one reason that successful investors like Warren Buffett have recently been selling bonds and buying stocks.
Meanwhile, my models indicate that equity prices will trend substantially higher than their current levels during the second half of this year — in spite of the flawed spending plan.
I’m therefore recommending for aggressive subscribers to my investment newsletter, The ETF Strategist, to allocate 100 percent of their capital to equity ETFs.
While many investors are currently too scared to buy stocks, history has shown that the best time to buy any asset is when “there’s blood in the streets.”
Although the ETFs that I’m currently recommending pulled back a bit during the past couple of months, investors who followed my advice over the past 17 months are way ahead of the game.
For example, the ETFs that I recommended to our aggressive subscribers outperformed 99.7 percent of the 5,218 equity mutual funds tracked by Morningstar Investment Services during 2008.
In comparison, the S&P 500 Index fell 37 percent in 2008, while stocks of emerging market companies lost between 40 percent and 65 percent of their value.
Click here to learn how to profit from changing priorities in Washington by signing up for a free trial to my monthly investment newsletter, The ETF Strategist.
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