The disaster in Afghanistan.
A surge in the Delta variant – with Lambda right behind.
Economic-growth reports that came in on the “light” side.
Inflation’s return from the dead.
Myriad problems with a root cause in China.
A bond market that’s trying to trick us.
And the list goes on.
For investors like you and me, there sure seems to be a lot to worry about these days.
And new worries seem to surface every week.
But don’t drink the hemlock just yet.
In the face of all those worries, U.S. stocks just keep climbing this so-called “Wall of Worry” – and remain in record territory.
Today I’m going to show you why that’s happening. And I’ll share a “Wall of Worry” stock play that’ll keep climbing, too.
Better still: This stock offers more than one path to a big-payoff destination.
But let’s first understand what the “Wall of Worry” is, why it’s actually a good thing, and the “false narrative” that’s causing the confusion.
This Wall’s Made for Climbing
A stock market “Wall of Worry” is one of those manifestations that lives up to its name.
We’re talking about the ability of a bull market to elbow aside negative headlines, negative factors, and troubling trends – and to instead treat them as a series of steps that take stock prices higher and higher.
It’s one of those situations where the “sum of the parts” – all the catalysts that are powering the bull market – are far more powerful than any of the individual “worry points” that happen to come along. That makes stocks resilient – which is why I’m so adamant about my “Buy-on-the-Dip” mantra.
And that means the stock market will continue to climb the “Wall of Worry.”
One of those “worry points” is the bond market, which is spreading a false narrative.
The Bond Market Fakeout
When interest rates rise, measured in terms of yields, with U.S. Treasury 10-year note being the benchmark, it’s usually a warning of less demand for a rising supply of bonds or about currency differentials.
It’s often also a warning that inflation is on the rise.
When the 10-year Treasury yield went from 1% at the beginning of January to 1.75% at the end of March – a huge move in only three months – the narrative was rates are rising because there’s serious inflation brewing and if the central bank doesn’t act, inflation could get out of control.
What bond investors were predicting, by selling bonds which causes yields to rise, was that the U.S. Federal Reserve would have to combat increasing inflationary expectations by “tapering” its purchases of $120 billion a month of Treasuries and mortgage-backed-securities – and eventually raise rates to combat rising prices.
The Fed didn’t see it that way. On the contrary, Fed Chairman Jerome Powell has been pushing back on the inflation fear-mongering, saying the inflation spurt is “transitory,” that it’s mostly due to supply-chain disruptions and will resolve itself in due course.
Since the end of March, bond yields have collapsed. The yield on the 10-year Treasury hit 1.14% two weeks ago – a huge drop in only four months.
The new narrative is that maybe the Fed’s correct and that inflation will be fleeting – and that the economy will keep growing.
Now stock market investors are torn between trusting what they’re hearing from the bond market and what solid corporate earnings reports are telling them.
The fear is, once earnings season is behind us, with stocks continuing to shoot to higher highs, investors will obsess anew over those low yields, start believing the best days are past – and turn bearish.
Jumping to the sidelines because of a “false signal” would be a mistake.
I suggest you focus on what really matters right now: Corporate revenue, earnings, profit margins, and share prices.
Prices are rising because earnings and profit margins and net profits are rising. Until that growth trajectory slows so much that it flatlines, we’re still looking at a bullish market laden with opportunities.
Stocks will keep climbing that Wall of Worry.
And here’s a “Wall of Worry Stock” that will keep climbing along with it.
In fact, we see two paths to profit.
The Naysayers Keep Missing Out
The stock I want to talk about here is Amazon.com Inc. (Nasdaq:AMZN).
And I’m calling it a “Wall of Worry Stock” for one very good reason: Even as investors talk about why it’s poised for a fall, Amazon’s shares just keep climbing – and have been for years.
The arguments against Amazon have varied from one year to the next, but they’re always there.
So let’s look at the arguments folks are using now – arguments like:
- “It’s too expensive” so it’s poised for a fall.
- “It’ll get broken up by the Feds – and, when it does, I’ll lose a ton of money.”
To both of those arguments, my response is: “Nonsense.”
Amazon always seems too expensive – but it keeps going up. Continued growth is Pathway to Profit No. 1.
And while I hope it won’t get broken up, it doesn’t matter if it does – because the “sum of the parts” is worth a whole lot more than the whole. A breakup, which could lead to “tracking stocks,” is Pathway to Profit No. 2.
The magnificence and brilliance of Amazon is that it isn’t one business – it’s a bunch of different businesses, interwoven beautifully. I’m talking about online shopping, distribution, product production, artificial intelligence, robotics, Big Data, the Cloud, supply-chain management, and advertising (for which it doesn’t get enough credit), AMZN is a giant – that still continues to grow.
Those corporate financial numbers I told you to concentrate on: Here’s a “taste” of Amazon’s.
Net income in 2019 was $10.6 billion – a total that nearly doubled to $21 billion in 2020. Analysts expect $25 billion for 2021 and $35 billion for 2022. That’s growth of profits on top of growth of revenue and market share and cash flow.
Amazon can just keep on growing if it’s not broken up.
And if it is split up into pieces – and the company establishes “tracking stocks” for each of those business units, I’d own each of them and perhaps not much else.
So investors can keep worrying as Amazon shares keep climbing.
That makes it the ultimate “Wall of Worry Stock,” but it isn’t the only one.
Until next time,
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Source: Total Wealth Research