Stock Market: Now Is A Good Time To Buy
That was fast. After exclamation marks when it hit 29,000, the Dow Jones Industrial Average is back to 27,000. It’s an especially meaningful level. It’s where the 200-day moving average (a widely-watched, longer-term trend measure) is, along with a proven, 2-year barrier.
Here’s the graph:
Disclosure: Author just invested in the SPDR® Dow Jones® Industrial Average ETF Trust (DIA)
But what about the worldwide selloff?
It was certainly dramatic in size and speed. And, yes, the coronavirus problem is probably not going away anytime soon. However, as others focus on 2020’s uncertainties, it is time to look at 2021. By then, today’s concerns will be relegated to the past. Therefore, perhaps ironically, the 2021 earnings forecasts could now be more relevant than the 2020 ones in determining what to buy and at what price.
So, what to buy?
With most stocks down significantly over the past few days, an investor’s favorite stocks are obviously a good choice.
For the rest of us, why not just go with a market index ETF?
- Looking at past performance, the choice would an ETF that matches the Nasdaq 100
- For a broad, all-encompassing investment, one of the many S&P 500 Index ETFs is a good choice
- For a focus on the blue chips, pick an ETF that matches the Dow Jones Industrial Average
- For a contrarian choice, there are the ETFs that focus on smaller company indexes like the Russell 2000
My preference is #3 – the blue chips in the Dow Jones Industrial Average. The 30 companies are well diversified, have been hit by the selloff in different ways, offer a range of conditions (contrarian to popular and value to growth) and, overall, provide a good dividend yield.
Watch and see. As I just wrote, Tesla’s next moves could indicate whether or not the bullish trend remains or is broken.
The bottom line
Although the coronavirus uncertainties are still with us, the dramatic selloff could be the full adjustment needed. If so, next will come an interest in the view of what’s to come beyond the coronavirus period. That forward-looking analysis could put us back onto a growth track of some sort.
However, do not expect a simple return to the pre-coronavirus growth stock market. There are a number of issues that need to be addressed. Doing so means the next market trend could be different from than the previous one. Therefore, a focus on blue chip stocks for now, like those in the Dow Jones Industrial Average, should offer growth participation as well as a shift to value and contrarian. A shift to a more focused approach can come later.