I predicted that the stock market needed to take a “timeout” from its relentless climb. Well, here we are! After yesterday’s 35-point drubbing, the S&P 500 index stands 3.4% below its record close from Mar. 2.
My conviction remains the same as it was two weeks ago. The major uptrend, dating from Mar. 9, 2009 (the bull celebrated his sixth birthday on Monday), is still intact. So far, I’ve detected no evidence that would point to a big downturn in the offing.
Rather, the recent pullback appears to be of the same ilk as all the others since the historic 2009 bottom. The market built up too much speculative steam, and now the bears are bleeding the boiler.
At the next interim low, those amateur plumbers will no doubt be predicting an imminent explosion, but it will be a false alarm. After a brief “pffft,” the boiler will fire up again.
I’m not dismissing the bears’ concerns out of hand. Many stocks in today’s market are priced for perfection. There’s little room for error if you own a stock with sky-high expectations built into it, as investors in Tesla Motors Inc (NASDAQ:TSLA) or Zulily Inc (NASDAQ:ZU) have discovered lately.
Among the dividend stocks we favor, though, the recent dip is proving to be a welcome buying opportunity. Yesterday, our limit order to purchase Toronto-Dominion Bank (NYSE:TD) was finally executed at $42.
Mr. Market took more than a month to bring TD down to our preferred price, but what’s the rush? Patience pays again, in the form of a better entry point for higher potential return and lower risk. Keep buying TD.
Now is a good time to step up your buying of equity funds, spreading out your purchases over a period of two or three months.
With prices now on a more reasonable plane, however, you can immediately put to work half the amount of cash you had earmarked for equities. Should the S&P 500 drop to 2,011 or less on a closing basis (5% below the all-time high), I advise you to invest the other half of your cash reserves. Otherwise, complete your purchases in two more installments, approximately one month and two months from now.
Finally, a quick note on precious metals. The dollar’s continued surge against the euro, yen and other foreign currencies has driven gold back within hailing distance of its November bottom. Silver has followed suit, together with the precious-metals mining shares. Platinum, the weakest member of the group, has broken to fresh multiyear lows in recent days.
These developments don’t bode well, in the near term, for the metals complex. Nonetheless, for investors who desire a long-term hedge against inflation, I expect that bullion and mining shares purchased at these levels will eventually generate more than satisfactory profits.
SPDR Gold Trust (ETF) (NYSEARCA:GLD) is a bullion fund to buy. For greater upside possibilities, but with more downside volatility, you might consider Market Vectors Gold Miners ETF (NYSEARCA:GDX), a basket of mining shares.
Lastly, kudos to shareholder-friendly Qualcomm, Inc. (NASDAQ:QCOM). Monday, the telecom chip-maker Qualcomm announced a fat 14.3% dividend hike and a $15 billion stock buyback. In recent weeks, QCOM has run up higher, but you can add to your stake on a pullback.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.
