The biggest threat to investors now is being lured into a bear trap. Each trap is a short period of rising prices that look like rebounds — but are followed by additional declines, asserts Jim Powell, editor of Global Changes & Opportunities Report.
During a long downturn, a series of traps are common — all of which create further losses for the unwary. Nothing can destroy an investor’s hard-won profits like buying what appear to be recovering stocks, only to see them plunge again.
If a bear market bounce is accompanied by a flurry of optimism from Wall Street’s army of pundits — it’s probably a trap. Most recoveries from bear markets begin when pessimism about the future is rampant and optimists sound like idiots. I’ve seen it happen several times when the bear was on its last legs and the bull was starting to stomp its way back. I think we are several months away from that point.
It’s too early to jump headlong into stocks that the recent stock market plunge made more attractive. However, it isn’t too early to begin to nibble at the best of them. Buying a few shares at a time is a better plan than buying what you want all at once because their prices may continue to decline. By nibbling at stocks on the way down, you are likely to get at least some of your shares at the lowest possible prices.
Waiting for the bottom of a bear market to arrive before you act is a game that almost nobody wins except by blind luck. Never rely on luck for investment success. Keeping the odds in your favor pays much greater rewards. It’s why Las Vegas casinos prosper while its customers lose.
Meanwhile, several stocks are now priced low enough to attract some cautious buying. Boeing (BA) and General Electric (GE) didn’t go over a cliff with most stocks last month because they had already sold off when their troubles began a year or two earlier.
However, both stocks did retreat when scared investors dumped almost everything in their rush to get out the door. I think long-term investors should take advantage of the selloff and add more GE and BA to their portfolios.
Due to the Covid-19 epidemic and the economic slowdown, GE isn’t having the strong recovery that we expected to see this year. Nevertheless, the company’s numbers have been improving.
GE Healthcare is doing especially well — but is being limited by supply chain disruptions. GE Renewable Energy is also suffering from supply problems — but its long-term outlook is excellent. GE Power has already become profitable again.
The company’s brightest star is GE Aviation that has been bouncing back strongly now that the Covid-19 scare is easing and more people are traveling again. GE’s fuel-efficient jet engines are in high demand by airlines throughout the world.
GE’s management just announced that its earnings will be lower for the first half of the year – but to expect better numbers for the second half. I think GE will finish its recovery once the economic downturn ends.
Boeing has been plagued by a series of problems that have been hurting its stock all year. Among them are supply constraints that are stalling the production of several aircraft — including the popular 737-Max. The problem got worse when sanctions on Russian raw material purchases cut Boeing off from its biggest supplier of titanium — a critical aerospace metal it uses in many of its military products.
Investors are also unhappy with Boeing’s decision to move its corporate headquarters from Chicago and Seattle — where it has its commercial and defense operations — to Arlington, Virginia to better hobnob with the Pentagon brass and curry support from US politicians. To cap it off, the economy is slowing down and may end with a recession.
The bottom line for Boeing is, the recovery is taking longer than first expected — but it‘s still in progress. Along the way, Boeing’s CEO, Dave Calhoun, may be shown the emergency exit — a move that would probably do more to help the company than anything else. It’s all worth waiting for.