As The Wall Street Journal recently pointed out, both the S&P 500 Index and the Dow Industrial Average have not hit a new high in over a year.
In fact, the stock market averages are little changed from the levels of late 2014 – not a shock, considering U.S. companies have been in an earnings recession for almost the same length of time.
Investors are beginning to lose their patience with this stagnant stock market. Through the week of May 11, 2016, they’ve pulled $67.7 billion from U.S. equity mutual funds and exchange-traded funds (ETFs) in 2016, alone.
For a market observer, like myself, this stuck-in-the-mud market status doesn’t come as a surprise. Just look at the history behind these dangerous stagnant periods.
Muddy Market History
According to the Bespoke Investment Group, this will mark the 21st time, since 1930, that the market has gone a year without making a new high.
This is one of those dirty little secrets kept under lock and key by brokers and CNBC, alike.
The stock market, on occasion, has gone through long periods without making any headway:
- Thanks to the Great Depression, the market levels of 1929 were not seen again until 1954.
- The 1970s were no picnic, either, thanks to the oil shock and rampant inflation. In January 1966, the Dow hit the 990 mark, a level that it did not re-visit until 1982.
- More recently, the Nasdaq hit a closing record of 5048.62 on March 10, 2000. It took another 15 years, in April 2015, for the market to surpass those numbers.
While I don’t expect a long-term drought like these earlier periods for the current stock market, history proves that, in times like these, the S&P 500 Index funds are not a reliable path along which to set your hard-earned money.
Can you afford to have your money just lying around for a decade or more, only to come up earning nothing?
The only reason these funds’ recent history looks remotely positive is due to the flood of central bank liquidity since the financial crisis has floated big-cap boats.
Even a casual examination of global markets shows that the central bank actions are losing their punch. And, despite all the liquidity, big cap stocks have been merely treading water since late 2014.
So what can investors do?
It’s crucial to find the right investments – as shelter from the storm of earnings recession and rich valuations well above the 10-year average – that still offer some upside and keep your money working.
The best place for earnings continues to be the bond market.
An undeniable fact is: Thanks to zany central bank policies, there are, globally, nearly $10 trillion in government bonds that trade with a negative yield.
That fact will – despite whatever the Fed may or may not do – keep a firm bid under U.S. Treasuries. With my forecast of a 1% yield on 10-year Treasuries within a year, the iShares 20+Year Treasury Bond ETF (TLT) looks very appealing.
Further, with the European Central Bank starting its corporate bond buying binge later this month, the Powershares International Corporate Bond ETF (PICB) also looks like a winner. This ETF has more than a 50% exposure to European corporate bonds.
It’s also important to note that periods of poor stock market returns tend to coincide with strong performances in gold and silver. As pointed out by my Wall Street Daily colleague, Jonathan Rodriguez: gold seems to have broken out on a technical basis.
I would play gold through the VanEck Merk Gold Trust (OUNZ), which allows investors to actually convert their holdings into physical gold, if they wish. Thus, this investment can become tangible and, therefore, even more reliable.
However, the best way to play stocks, currently, is to stick with the dividend payers.
One ETF to grab dividends globally is the WisdomTree Global High Dividend ETF (DEW), which is up about 3% this year in addition to paying quarterly dividends.
U.S. stocks make up roughly 55% of the portfolio, led by well-known names like General Electric Company (GE), Exxon Mobil Corporation (XOM) and Johnson & Johnson (JNJ).
The returns from the funds I’ve mentioned project steady gains and I believe they will easily outpace stagnant S&P 500 funds.