Author: Smart Investing

Stock market

The Compound: The Recession We Deserve

Posted on by Smart Investing

The Federal Reserve started raising interest rates in 2022. At the time, investors thought the central bank would make only a few small increases. Instead, the Fed increased until mid-2023, going from zero percent to 5.5 percent.

Now, the bank has been hinting at interest rate cuts later this year. That suggests that interest rates may have peaked. As a rising interest rate environment helped the stock market decline in 2022, interest rate cuts may be bullish.

But some sectors may fare better than others. Many investors may see the value of interest-rate sensitive stocks such as utilities or real estate.

History suggests that the biggest beneficiaries may be growth stocks and small caps. These are companies that typically have to pay up for financing compared to large institutions.

As these companies are able to secure funding more cheaply, they could take off. And they could see rising demand as lower interest rates spur growth in general.

These companies tend to benefit during the initial rate cut stage.

Later on, larger companies and growth stocks can still continue to trend higher. But their returns are usually lower.

Investors will have a number of options available to benefit from interest rates being cut later in the year.

And for now, investors can continue to benefit from the current bull market, but may want to shift to rate-sensitive sectors in the coming months.

 

To watch the full video, click here.

Economy

Game of Trades: I Was Wrong

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History is being made. For over a year now, the yield curve on U.S. Treasurys has been inverted. That means that shorter-duration debt has a higher annualized yield than higher-duration debt.

Typically, the opposite is the case. Investors demand higher yields for holding debt for longer periods of time. When the yield curve is inverted, it signals an imminent recession. However, that has not played out this time.

Economic indicators show that the economy is expanding overall. However, the inverted yield curve shows that we should be contracting.

What’s different this time? The past four years have seen a shutdown of the economy over a pandemic, massive money printing, and soaring interest rates to tamp down inflation.

Meanwhile, corporate earnings have continued to grow. That’s helped push up stock market valuations overall.

Plus, jobless claims are still near historic lows. A rise in jobless claims would indicate a higher chance for an economic downturn.

Today, there seems to be no catalyst for a change in that current trend. However, many business cycle changes often appear to have no catalyst at first.

Meanwhile, the media has adopted the “soft landing” narrative. In the past, increases in the term soft landing have occurred well before more significant downturns.

For now, the markets are trending higher. But if that trend changes, investors may want to take some profits and get more cautious.

 

To view the full analysis, click here.

Cryptocurrencies

The Pomp Letter: Bitcoin’s Price Has Doubled Quickly After Every New All-Time High

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Bitcoin broke its prior all-time high of $69,000 on Tuesday. While it only hit $69,200 before sharply pulling back, the uptrend remains in place. And several factors point to bitcoin continuing higher in the coming months.

The upcoming halving event in April will cut new supply coming to market in half. And demand has soared since the SEC approved 11 ETFs that buy and hold bitcoin. So where can the metal go from here?

In the four prior times bitcoin has broken all-time-highs, moves have been fast and furious. Two breakouts in 2013 resulted in the price doubling in 10 and 18 days.

A new high breakout in March 2017 saw bitcoin then double in 84 days.

And in December 2020, once bitcoin hit a new all-time high, it doubled in just 18 days.

Today’s combination of increasing institutional interest and another halving points to another potential double this year.

From its all-time highs, a double would take bitcoin to $138,000.

Given bitcoin’s existing move in the past few months, some pullbacks along the way will be likely. History suggests those pullbacks should be bought.

But it may also be a sign that investors have their last chance to buy bitcoin relatively cheaply. The one-two combination of new all-time highs and a halving point to further gains this year.

 

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Stock market strategies

Tastylive: When Volatility Is High Use this Strategy

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With markets near all-time highs, market volatility has been low. For the past five weeks, markets have been pricing in an overall move of about 1.1 percent. That’s historically near the lower end of trading.

When market volatility is low, so are option premiums. That can make some option trading strategies more challenging than others. Selling option premium becomes less attractive when volatility is low. But buying options can become more attractive.

The measure for market volatility for options traders is implied volatility, or IV. Since last March, implied volatility has fallen by roughly half.

The volatility index stands around 14. On average, it tends to trade closer to 17. And it can and often will spike to 20 or more when the market has a down day.

From a level of 14, even a reversion to the market’s average volatility will look like a big spike.

When those big spikes happen and volatility is higher, investors can fare better with trades like selling put options or covered calls for income.

And a higher volatility spike tends to mean a sizeable market move in one direction or another. Those events can usually provide opportunities for traders who bet on markets pulling back from that kind of extreme move.

 

To view the full analysis, click here.

Income investing

Dividend Growth Investor: 17 Dividend Growth Stocks Raising Shareholder Distributions

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While the market continues to hover near all-time highs, other assets have been performing strongly. Gold and bitcoin made new all-time highs this week.

Also, the total amount of dividends being paid out by corporate America is also at a high. And it continues to grow. While dividend stocks are slower moving than cryptocurrencies or tech stocks, they can still offer investors excellent returns. All while throwing off cash.

Currently, there are now over 530 businesses in the United States that have increased dividend payouts annually for at least a decade.

Investors who buy into these stocks can employ a “slow and steady” approach to earning increasing amounts of cash.

Recently, 17 of these companies announced increases.

That includes insurance provider Old Republic International (ORI). They just raised their dividend for the 43rd consecutive year. And they increased their payout by 8.2 percent.

Combined with a current yield of 3.3 percent, shares have more upside in the years ahead.

Electronics retailer Best Buy (BBY) has increased its dividend for the 21st year in a row. Shares now pay a hefty 4.8 percent yield.

The increase of 2.2 percent is a bit smaller than the 10-year growth of 18 percent. But if retail spending rebounds, bigger increases are likely in store in the future.

 

To view the full list of 17 dividend achievers raising their payouts now, click here.

 

Stock market strategies

Data Driven Investor: Play the Probabilities to Win in the Stock Market

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Investing comes down to probabilities. While investors may look at a runaway stock and simply see dollar signs, a rising stock has a different risk and reward profile compared to one that’s not making a big run.

Professional poker players will consider the odds and lean into hands with a higher probability of winning. Excellent investors will do the same as well. Knowing the odds and how to play them can substantially improve investment returns.

Looking at an investment in terms of a probability means avoiding certainties. What seems certain when investing can, and will, often change.

One way to improve your probability to win with investing is with some income-paying stocks. That’s because dividend stocks tend to have lower volatility, and help investors stay in markets during downturns.

Plus, over time, reinvested dividends could make up as much as half or more of an investor’s lifetime returns.

Besides that, having some diversification across sectors and asset classes helps put the odds on your side.

It’s now infamously known that 2022 was both a bad year for stocks and bonds. However, that was just one of three such years in American history that both assets declined.

Making small changes to improve your investment return can give you an edge. Over time, that edge can add up to substantial improvements for your net worth.

 

To read the full article, click here.

Commodities

FX Evolution: How Much Higher Can We Go?

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The market rally since late October has been strong. Some analysts even view it as too strong. Fear of missing out (FOMO) seems to have afflicted markets. That’s caused assets such as bitcoin and gold to hit new all-time highs.

It’s also showing up in many stocks, notably tech stocks with a strong correlation to AI. There is both a bull and bear case for markets right now. The current uptrend suggests some further upside, but not much.

For some assets such as bitcoin, the cycle remains bullish. The asset will have its halving event in mid-April. That will cut the reward for mining bitcoin in half.

Meanwhile, bitcoin demand has risen in the past two months since the approval of bitcoin ETFs for trading. That’s allowed bitcoin to touch on the $69,000 peak price it last saw in 2021.

When bitcoin hits new highs, it typically doubles in 20-90 days. With this new high occurring right before a halving, bitcoin could be on track to clear six figures by the end of the year.

Meanwhile, inflation has declined. But wringing out the last of it from the system is proving much tougher. That may help gold prices trend higher. Gold previously hit a high of $2,130 in mid-December, but hit $2,150 this week.

As these assets head higher, it may be time for the stock market to take a belated seasonal breather.

 

To watch the full analysis, click here.

Cryptocurrencies

Simply Bitcoin: This Bitcoin Mistake Could Cost You Everything

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Cryptocurrencies led the markets higher last year. And that trend continues in 2024. The SEC approved 11 bitcoin ETFs for trading. That’s allowing institutions to invest in bitcoin easily. With money flowing into these funds, prices continue to trend higher.

Given the volatility in bitcoin and cryptos in general, however, it’s likely that prices won’t continue to trend straight up. There will be pullbacks. It’s how investors handle that volatility that matters.

For most traditional assets, a price decline may be a time to sell and reevaluate. Even cyclical industries will have periods where they underperform for years.

In cryptos, a bear market can mean a big pullback of 80 percent or more from the prior highs.

That’s the kind of market where traders will want to sell. However, the bull markets in cryptos make massive upside returns.

So at some point, sellers should have a plan to get back in. They may not time the exact bottom correctly, but it can still lead to profitable returns.

Many bitcoin investors have taken a buy-and-hold approach. While sitting through massive pullbacks in price isn’t pleasant, the upside has more than made up for the downside.

Those looking to invest in cryptos may want to start with a small percentage of their portfolio. And plan to hold indefinitely, even during a downturn, to avoid turning a paper loss into a real one.

 

To watch the full analysis, click here.

Commodities

Asset Strategies International: What Would It Take for Gold to Reach $3,000?

Posted on by Smart Investing

Gold prices have held up well over the past few years. The metal has even made a new record-high price in dollars in the past year. Geopolitical tensions and resilient inflation are keeping the metal priced near $2,000 per ounce.

The next year could see the metal trend even higher. That’s due to several factors that continue to play that are leading to higher demand for gold.

Currently, interest rates are at their highest level in 15 years. Markets expect the Federal Reserve to cut interest rates later this year.

Lower interest rates mean a lower cost of capital. That could keep the economy growing. But it could also keep inflation higher.

That scenario is likely good for gold and other precious metals.

Another factor at play is the ongoing buying by central banks. Typically, central banks diversify their holdings with a number of other country’s currencies.

The past few years have seen strong demand for gold. Given how many countries have devalued their currencies in recent years, that looks like a strong hedge.

Governments will likely have no choice but to keep printing. In the United States alone, trillion-dollar deficits have become the norm. And the rising costs of financing that debt make money printing look more attractive.

 

To read the full analysis, click here.

Passive Income

Bigger Pockets: Dave Ramsey Is Wrong – Doing This Won’t Make You Wealthy, But There Is Another Way

Posted on by Smart Investing

There are many roads to wealth. And many ways for those to get started on the road. Some strategies for building wealth are based on keeping expenses minimal. That can include avoiding such small expenses as dining out or buying a cup of coffee.

While avoiding excessive expenses can save money, it doesn’t lead to a pleasant life. There are better places to reduce expenses and enjoy a more abundant life.

It’s more likely that making small cuts will simply mean reducing your current quality of life. Instead, the focus should be on first removing destructive expenses. That includes credit card debt, which carries a high interest rate balance.

And instead of avoiding debt entirely, investors can use it safely. Buying real estate will usually entail a large amount of debt. But such debt tends to carry a low interest rate. And it can be used to buy an appreciating asset, such as a home.

Even better, real estate can provide cash flow. That means even after making the debt payments, it puts money into your pockets each month. That’s passive income.

Ensuring that your expenses are productive for building assets and increasing cash flow make for a more satisfying strategy than cutting back. That’s why having an abundance mindset, rather than a restrictive one, matters.

 

To read the full list of ways to build wealth, click here.