Is the “correction” finally here? Thursday’s stock market swoon, which shaved a hefty 176 points off the Dow, hasn’t yet rattled the frenzied permabulls on CNBC Bubblevision. But it may well signal the onset of the 5%-10% pullback I predicted earlier this year.
I foresaw such a retracement “after the market’s seasonal strength climaxes early in the first quarter.” Year to date, the S&P 500 index registered its peak close at 1848.38 on January 15.
Hints of a coming equity sel-loff have actually been with us since the first trading session of the New Year. Bond yields have fallen sharply, despite the rants of the “economic growth is accelerating” crowd. Gold and the mining shares have snapped back—evidence that some investors, at least, are taking an interest in portfolio insurance again.
Now, with a weak report from purchasing managers in China’s manufacturing sector, Wall Street has its excuse to backpedal a bit.
Fortunately, a severe stock market downturn doesn’t appear to be in the cards. Publicly traded corporations, on the whole, continue to post strong earnings, and interest rates remain near the low end of their historical range.
In fact, as bond yields slip, equity valuations are already beginning to look more attractive. My plan, therefore, is to increase stock holdings, steadily and methodically, as prices retreat.
Start with defensive names, and move on to more-aggressive picks as the “correction” unfolds. I’m pleased to see that Procter & Gamble (PG) has drifted back into a reasonable buy zone.
Don’t expect this stock to blast through the roof. Instead, buy PG for a decent current yield (3.0%), together with steady mid-single-digit growth in the share price over the next decade—for a total return of 8%-9% annually.
Boasting an unparalleled stable of household power brands (Tide, Pampers, Gillette, etc.), Procter & Gamble is the type of business you can count on to deliver the cash you need for retirement and other long-term goals. (Dividends have been sweetened 57 years in a row.) Pay up to $79 for PG.
Want a second name for your shopping list? McDonald’s (MCD) Q4 earnings report contained few surprises, but on a bad day for the Dow, meeting the Street’s expectations was enough to bolster the stock.
If we’re headed into a more turbulent period for the market, as I expect, a low-volatility stock like MCD with its 3.4% dividend should serve you well.