The U.S. Federal Reserve is pumping a record liquidity into the economy and financial markets, which may have some wondering how to invest during Fed stimulus the likes of which we’ve never seen before.
The coronavirus outbreak triggered a rapid, unprecedented response from the Fed that could amount to over $3.5 trillion in purchases of government securities by the end of 2020, according to Oxford Economics.
But that’s not all.
After a long wait, the central bank also started purchasing corporate debt through bond exchange-traded funds Tuesday.
BlackRock Inc. (NYSE: BLK), under the supervision of the New York Fed, will conduct the operation aiming to stabilize the corporate debt market that ballooned to $834.3 billion in April.
Many people worry that Fed stimulus — along with U.S. government efforts amounting to $2.4 trillion in spending — is creating an unsustainable bubble that will eventually pop.
Others suggest a more bullish approach.
That’s exactly what Banyan Hill Publishing’s Jeff Yastine is telling his Total Wealth Insider readers as the stock market has rallied over 30% from its March 23 lows, thanks in large part to the Fed’s efforts.
Banyan Hill’s Jeff Yastine
“I’ve told my newsletter subscribers that the Fed’s efforts, along with the federal stimulus, are going to be like pouring gasoline on a fire from an economic and market perspective,”said Yastine, who is also the editor of . “I think it is the new normal unless — or until — we get stability in the economy and we are well past whatever threat the coronavirus continues to pose to U.S. economic health.”
So how should you invest during Fed stimulus the likes of which we’ve never seen?
One Way to Invest During Fed Stimulus
Yastine points to the Fed’s aggressive actions, including slashing its benchmark interest rate to near zero, as all the more reason for investors to be in the stock market — at least for now.
“It’s not a natural thing. It’s not normal,” Yastine said of the low interest rates. “But this is why we need to still remain as investors who are engaged in the stock market. As we’ve seen in past Fed efforts, much of the impact of rate-cutting finds its way into the stock market. Rightly or wrongly, that’s what it does — at least in the short term.”
That doesn’t mean investors should pile into what everyone else is buying, though. Yastine’s Total Wealth Insider helps you find undervalued stocks and companies that are transforming their business models to thrive in the digital age.
“For investors, what I’m telling my subscribers is that you can still buy stocks. But be smart about it. Don’t chase after the same stocks you see talked about on CNBC unless they’re truly undervalued,” Yastine said. “The fact is that the important stocks — the ones that drive the S&P 500 up and down and are already owned by a bazillion investors — are even more overvalued now than they were before the coronavirus crisis began. So that’s no place to look. In my newsletter, we’re going after stocks that have been overlooked in the rally, or are small enough to pass under the radar of most investors unnoticed.”
Complacency is the enemy for investing during Fed stimulus, though, and Yastine warns that the central bank’s “activities are not a Get Out of Jail Free card.”
While the major U.S. indexes have climbed out of bear market territory since their March lows, Yastine doesn’t think we’re out of the woods yet.
“There could still be a bear market lurking — but by definition, they usually set their hooks in investors when they don’t expect it,” he said. “So I continue to believe that if we are going to see a real bear market, it will be after we’ve reached, or exceeded, the old all-time highs from earlier this year, and people — ironically enough — feel like they can finally relax and be out of danger.”
There are plenty of opportunities to invest during the Fed stimulus, and there’s still plenty of room for the stock market to keep rising.
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