Volatility is Back!
The last couple of weeks have shown that volatility is back in the stock market. In particular, technology shares have taken a beating the last couple of weeks with the Nasdaq (QQQ) now testing a key technical trend line (the 50 day moving average). Similarly, the S&P 500 (SPY) is also testing the same trend line. Many market watchers think a break below the 50 day moving average means more downside to come - how much is anyone's guess, but an additional 10% correction (SPY is down about 7% and QQQ is down about 11% from their recent all time highs) is not out of the question. Most agree this correction is "healthy" in that the technology stocks have had quite a run since the March lows and even if you sell now after this small correction, you are locking in some pretty large gains if you own some of the more popular stocks such as Amazon, Facebook, Apple, Nvidia, Tesla, Google, Netflix, etc.
With the large weighting of these few technology stocks in the stock market indices, their decline (along with many other technology stocks) is pulling down the averages. Uncertainty about the US Presidential election, the course of the COVID-19 pandemic in the fall/winter, and the lack of another stimulus package from Congress, which almost everyone agrees is vitally necessary to keep the economic recovery on track, have been weighing on investors' minds and have added to the volatility. However, underneath all the headlines about tech stocks and stock market averages, many stocks that do well in an economic recovery are showing considerable strength.
Here are a few of my favorite "heavy industrial / cyclical" large cap stocks that look to perform well over the next several months as the economy recovers and investors continue to rotate from tech:
Caterpillar (CAT) - 2.7% dividend yield, up 8% in the past month and expected to grow as demand for heavy equipment grows in the recovery
United Parcel Service (UPS) - 2.5% dividend yield, up 2% in the past month and poised for further growth potentially after FedEx earnings next week, which is expected to show more growth in package deliveries due to the pandemic
Du Pont (DD) - 2% dividend yield, up 2% in the past month and expected to grow as demand for chemicals grows with the recovery
Ulta Beauty (ULTA) - No dividend, but up 6% in the past month and expected to be one of the better "reopening plays" as the economy opens post-COVID and people renew their focus on health and beauty products
Rio Tinto (RIO) - 6% dividend yield, up 3% in the past month and expected to grow as demand for basic materials (iron, aluminum, copper, diamonds) grows with the economic recovery
PPG Industries (PPG) - 1.7% dividend yield, up 6% in the past month and expected to grow as demand for paints, coatings and glass products grows with the economic recovery
A good allocation to cash is also wise in these times to take advantage of opportunities as they arise and if you follow the Financial Fortress concept, you are already well diversified and not worried too much about the stock market's (or any other market's) short term gyrations.
Of course, you will need to do your own homework and invest where you feel comfortable. I'm not recommending any particular stock or strategy and full disclosure, I do own / manage positions in the stocks mentioned above. Stay safe, healthy and positive.
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.
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