Debt crises in Europe and Japan are driving capital flight out of bond markets in search of better investments.
And at the top of their list? You guessed it: U.S. stocks!
That’s why I’m not one bit surprised that over the past eight years, the Dow Jones Industrial Average has gone up a staggering 227%.
After all, capital is agnostic. It doesn’t care that governments are bankrupt or that their economies are struggling or that their currencies are deflating.
The thing is, regardless of world conditions, there are always people and companies that have enormous amounts of capital to invest. And capital always seeks the safest, best returns possible, no matter where they are in the world.
Larry Edelson accurately predicted this capital flight – away from the public sector (government bonds) into the private sector (stocks) – many years ago. He correctly explained that stocks represent assets that can outlast governments.
In fact, this is exactly what happened during the Great Depression – when the Dow rallied 372% from 1932 to 1937.
And it’s these powerful and undeniable global forces that are driving the bull market in U.S. stocks and will lift the Dow to 31,000.
That’s not a typo: 31,000 on the Dow.
But not without an occasional market correction.
In the long history of capital markets, nothing ever moves in a straight line either up or down – there are always minor corrections against the prevailing trends.
And fair warning, I see this dynamic setting up in U.S. stocks going into mid-year.
In the short-term – days and weeks ahead – the Dow Jones and S&P 500 Indexes could grind marginally higher on the back of strong first-quarter earnings season, but it won’t last.
While estimates have come down, the market is looking for first-quarter earnings growth of nearly 10 percent from the year-ago period – that’s a very tall order. And investors could be disappointed with actual results.
That’s just one of many catalysts that will trigger a healthy and much needed market correction lasting six to eight weeks …
The above chart of the Dow Jones Index slides into late June. This presents an excellent buying opportunity for select stocks, before they blast sharply higher again.
This will be the time to purchase blue chip stocks — and their sectors — on the cheap.
In fact, right now, I have my eyes on a couple of sectors under their belts. My list includes energy, consumer staples and defense, among other sectors. These stocks are ripe — and almost ready for the picking.
But now’s not the time to back up the truck. Patience and timing — as always — are key.
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) closed at $206.38 on Friday, down $-0.07 (-0.03%). Year-to-date, DIA has gained 4.49%, versus a 5.22% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of The Edelson Wave.