If you crave massive market volatility and wild day-to-day swings, boy has this been your month, suggests Mike Larson, editor of Safe Money Report.
Since 2022 got underway, some stocks and sectors have plunged. Others stocks and sectors have soared. Early multi-hundred-point Dow rallies have turned into late multi-hundred-point Dow plunges. Heck, on Monday alone, the Dow tanked more than 1,100 points at one stage—only to turn around and close 99 points higher!
Many analysts are running around like their hair is on fire. But me? I’m the calmest guy in the room...and today, I’ll tell you why.
First, though, let’s talk about what is driving this action. The biggest contributor is the Federal Reserve, bar none. Just a few hours after you see this column, the Fed will announce the results of its latest two-day policy meeting.
Investors have known for a while that inflation stinks, that it was never “transitory,” and that real interest rates somehow remain deeply mired in negative territory. The Fed tried to pretend otherwise for a while. But faced with overwhelming evidence, it has finally given up.
Now policymakers have started dialing back QE. They’ve signaled they’re soon going to cease buying Treasuries and mortgage bonds altogether. And they’ve also suggested they want to start raising interest rates before long.
That policy shift has rocked the interest rate markets. It has also prompted a powerful rotation in the stock market. And there’s no sign either trend will let up.
So, how the heck can I be so calm? Because my Safe Money subscribers...and readers like you...we’re ready for this!
First, I’ve been favoring more defensive, higher-yielding, high-quality stocks for months on end. I’ve also been talking about strategies that help investors like you generate consistent income that helps you beat lousy inflation and record-low rates for ages.
If you’ve followed that guidance, you’ve been feasting on dividend and options premium income while also benefitting from the shift toward quality, value-oriented stocks.
Second, I’ve been warning everyone who would listen to avoid all the two-bit garbage stocks, SPACs, and money-losing IPO turkeys Wall Street has been peddling. Sure enough, those names are getting eviscerated.
A few examples? The Defiance Next Gen Spac Derived ETF (SPAK) was down 24% in the last two months. The Renaissance IPO ETF (IPO) was down 33% in three months. The ARK Innovation ETF (ARKK) was down a whopping 49% in the last year.
Those aren’t even the worst offenders, either. Some individual “flavor of the month” names talked about non-stop in the financial media have plunged even more.
Virgin Galatic Holdings Inc. (SPCE)? The money-losing company struggling to make a business out of the nascent space tourism industry? It’s down 45% in the last month.
Robinhood Markets Inc. (HOOD)? The operator of the trading app with the same name? It’s down more than 68% in the last three months.
What a travesty! This is just like what happened to a bunch of Dot-Com junk stocks in the early 2000s.
Third, I urged you not to give up on precious metals or related stocks even though they had a rough year relative to the market in 2021. Now? They’re both outperforming strongly so far in 2022.
Moreover, the spread between the performance of “real gold” vs “digital gold” has gotten downright enormous. That just underscores the importance of owning traditional safe havens and stores of value, rather than just abandoning what has worked for decades because some 25-year-old on CNBC tells you to!
I’m not suggesting Safe Money stocks and ETFs will remain completely unscathed in a sharp downturn. If volatility gets bad enough, even high-quality names will get nicked.
But will they crush a third of your capital in just a few weeks? Destory two-thirds of it in a single quarter? Not likely. Not at all.
Bottom line? Safe Money strategies have made the most sense for quite some time. They make even more sense in light of the recent volatility.