As the second-longest bull market on record continues, a market correction in 2018 is becoming a real possibility…
But unprepared investors could lose 10% of their portfolios or even more.
That’s why we want our readers to be prepared no matter which direction the market is moving.
While the Dow has rocketed over 250% higher since March 2009, and nearly 20% higher this year alone, there are some market correction warning signs we’re seeing.
And the next market correction shouldn’t be that surprising.
There have been four corrections of 10% or more since the bull market began in 2009.
Now, we aren’t predicting that there will be a stock market correction in 2018, but we do want our readers to be fully informed. Here’s why a 2018 market correction is a possibility, and what you can do to protect your money…
2 Reasons We Could See a Stock Market Correction in 2018
The Dow rose above the 23,000 mark for the first time in October, which is excellent news for investors. However, there are two reasons that the soaring highs could come to an end.
The first is the tightening monetary policy by the U.S. Federal Reserve.
After the financial crisis in 2008, the Fed took bold measures to combat the economic recession. It cut rates all the way down to 0.25% in 2008, from more than 5% in 2007.
And it’s kept rates at that historically low level. Until now.
The Fed has hiked interest rates four times since December 2015, and interest rates are now above 1% for the first time since 2008. With a third rate increase expected next month, and up to three more in 2018, interest rates will soon be above 2%.
That’s important for the stock market, because historically low interest rates have helped fuel stock price gains.
Publicly traded companies took advantage of the cheap borrowing costs brought by low interest rates, and they used the money to repurchase shares of their own stock.
Between 2009 and 2016, public companies borrowed $1.9 trillion while buying back $2.1 trillion of their own stock.
The trillions of dollars flowing into the stock market has helped boost share prices over the last eight years. And the low interest rate environment that made it possible is ending.
The second warning sign is that stocks are at historically high valuations.
While stocks have soared, they are trading at more expensive prices than their fundamentals show they should be.
Take a look at the Shiller P/E ratio, one of the top measurements of stock market valuations. Right now, that ratio sits at 31.42, which is 86.9% above its historical average.
Only twice has the Shiller P/E ratio risen higher than it is today: in 1929, before the stock market crash, and in 1999, ahead of the dot-com bubble popping.
That doesn’t mean a market crash, or even a market correction, is on the way. But it is a market correction sign, and investors are smart to have a plan in place if the markets turn south.
Fortunately, we have two stocks you can buy that will protect your money, and even help you profit, during a market correction…
Protect Your Investments from a Market Correction with These 2 Stocks
The two stocks we’re recommending have proven resilient during past downturns and even crashes. Both of these stocks brought positive returns during the tech crash in 2000, even as the broader markets fell more than 10%.
And while there’s no guarantee these stocks will be immune from the next correction or pullback, they are some of the best companies in the most in-demand industries.
Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks investors should hold on to stocks in the “Unstoppable Trends.” The trick to making huge profits is to find “must-have” companies that fall into these six “Unstoppable Trends”: medicine, technology, demographics, scarcity and allocation, energy, and war, terrorism and ugliness (also known as “defense”). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.
By owning well-run companies in these Unstoppable Trends, you’ll own resilient stocks that will charge out of any market downturn, leaving behind anyone who sold off stocks for other assets. And if the market doesn’t correct, these stocks are still going up.
That’s why we’re bringing you two of our favorite stocks from the Unstoppable Trends.
Raytheon Co. (NYSE: RTN) is our play for the trend of war, terrorism, and ugliness.
Raytheon is a leader in the defense industry, with billions in contracts with the U.S. government and other countries across the world. That means, if the market falls, Raytheon is going to continue to excel over the long term.
Raytheon has billion-dollar contracts with the U.S. government, but it also has a diverse customer base. International customers make up just under half of its business. That means even if a few countries cut defense spending during an economic downturn, RTN still has plenty of other customers to help it weather the storm.
But RTN’s real allure as an Unstoppable Trend pick is the fact that war is a reality of the world. For instance, as tensions rise abroad, the United States is more likely to need more weapons and equipment. When the United States launched a missile strike on a Syrian airbase on April 7, Raytheon’s stock jumped more than 2%, since its missiles were used.
RTN currently trades at $185.37 a share and pays a 1.72% dividend yield. RTN is up 30.6% this year.
Becton, Dickinson and Co. (NYSE: BDX) is an example of a play in the Unstoppable Trend of demographics.
BDX is a healthcare company specializing in one-time use medical products utilized in hospitals and long-term care facilities. That means as populations age, more people will need this type of medical care, and BDX will be in even more demand. People will need healthcare whether the market falls or not.
But BDX is also an exceptionally well-managed company. It has a 10.54% profit margin and maintains a 1.58% dividend yield, even after a $12.2 billion takeover of CareFusion two years ago.
That means the company’s capital management is sustainable and will easily survive a market downturn. And that’s good news for its shareholders during a stock market crash.
BDX trades at $221.52 and pays a 1.3% dividend yield. BDX is up 33.8% year to date.
— Money Morning Staff
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Source: Money Morning