Dear Reader,
It’s hard to believe November is here already.
And in the stock market, we’re coming off what feels like one of the strongest Octobers in recent memory. Four of the indexes rose an average of just over 6% last month.
And with such a strong October in the rearview mirror, it might be instinctive to wonder if it will last. Should we hope for similar results from the rest of the year… or lower our expectations?
Given all the negative news we see daily, it’s understandable to wonder.
So today, I’d like to give readers a broader perspective on what we can expect as 2021 wraps up… and show you where the biggest opportunity lies…
Rounding Out the Year
Hi, I’m Jason Bodner. I’m the editor of Outlier Investor here at Brownstone Research. And each Saturday, I bring readers insights that may stray from your usual Bleeding Edge content.
You see, I’ve got a bead on the markets… and I can see where the Big Money is going. Every night at 2 a.m., I use automated quantitative analysis and artificial intelligence to scan through all of the moves from the previous day – even ones that are hidden from the general public.
And using the skills I earned in my 20 years on Wall Street, I analyze the results to spot the best places for investors to put their money.
And what I’m seeing ahead of us right now has me looking forward to rounding out the year…
When I compare this October to past best Octobers going all the way back to the ‘90s, we can see that this year’s turnout wasn’t actually so far out there. It was bang in the middle of the pack.
So how did the following Novembers and Decembers in those same years fare? Take a look for yourself…
While a couple of years experienced a few bumps, it looks like history is on our side for a fairly smooth ride through the end of the year.
This may give passive investors some peace of mind. And anyone who holds index-tracking ETFs might breathe a sigh of relief.
While there are no guarantees, you can probably worry more about finding good gifts this holiday season among the supply crunch than market turbulence.
But as active investors who are trying to beat the markets… What does this setup mean for us?
Beating the Markets
In the end, active investing comes down to investment selection. It’s a fun but sometimes frustrating game.
As I’ve shared with readers previously, I believe in the power of outlier stocks. There are just 4% of stocks that are responsible for all of the stock gains above Treasurys since 1926. And a mere 1% of stocks were responsible for 50% of the gains of the entire market.
That means, if you’re good at finding these outliers, you can beat the market.
And this is what my research is telling me right now…
Industrial players and hedge funds – the Big Money – are returning to stocks in a big way right now. I track this buying with my Big Money Index (BMI), which determines how many “buy” signals vs. “sell” signals I’m seeing.
As we can see, this year has been a bumpy, mostly downward ride. But starting in mid-October, the BMI has taken off like a rocket.
At the low, the BMI fell to 48%, meaning less than half of all the signals I saw were “buy” signals.
This week, the BMI hit 65% and shows little sign of stopping. That’s a big change in a short period of time.
And the stocks making those signals are phenomenal growth stocks. Suddenly, everything that was punished over the summer has been loved to the moon.
It appears that’s also especially great news for technology and discretionary stocks that have wobbled this year. I’ve noticed money flowing out of energy and into tech and discretionary stocks at a high rate recently.
And we got some solid news from the Federal Reserve this week as well that provides additional evidence of a clear runway ahead.
While investors can be jittery about tapering, the Fed came out and said it will keep rates the same for now – at 25 basis points.
The Fed also announced it would begin tapering purchases. That means they will reduce the amount of money they are supplying to the economy. It may be small to start, but that means they feel the economy is strong and they want to partially combat recent wicked inflation.
While rates might go up in the future, investors can relax on this front for a while yet. That’s good news for the stock market – especially growth companies that will still be able to borrow money at these low interest rates.
So how do we play this seasonally strong period?
To hop on that trend, investors might consider buying the Technology Select Sector SPDR ETF (XLK) and/or the Consumer Discretionary Select Sector SPDR ETF (XLY).
And if investors have had any specific technology stocks (biotech, in particular)… small-caps… or other growth companies on their wish list, I’d use any choppy days as a chance to build a position and ride it through at least the end of this year.
All the signs I’m seeing say that these stocks will have tailwinds over the next couple of months. That’s a good bet for outperforming the overall market’s returns.
Talk soon,
Jason Bodner
Editor, Outlier Investor
P.S. I’ll continue to provide my subscribers with the specific names and tickers of the hottest outliers coming across my radar in the next few weeks. We’ll be sure to take advantage of this seasonally strong period with our portfolio of companies. And if any readers want to find out about those outliers, you can simply go here to learn more.
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