A Major Market Puts the Pandemic in the Rearview Mirror By Chris Igou, analyst, True Wealth
There's only one way to know when a market has moved on from a crisis... It's not necessarily after the crisis is over, either. Instead, it's when a market completely erases the losses it endured from the terrible event. I'm talking about when a market breaks back out to new highs. This simple measure is the market telling us that what used to be a concern isn't anymore. That happened for the U.S. market in August 2020. And the S&P 500 has rallied double digits since then. But many global markets have taken longer to reach new highs. Now, it's happening in German stocks. The German Stock Index ("DAX") broke out to a new 52-week high over the past month. It's this market's way of putting the pandemic in the rearview mirror. And it could mean double-digit gains over the next year. Let me explain...
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Hitting 52-week highs isn't as rare as you might think. When a stock breaks out above a previous high, the old high is no longer the record over that period. This happens fairly often. Markets can hit high after high after high during a bull run. That's why we look for "new" 52-week highs to see if a market is truly breaking out. This highlights the first time a market has hit a high in at least a year. That means it only triggers once over a 52-week period. And it gives us a way to find markets that are just starting to break out. Catching a move like this can lead to significant outperformance for investors. And Germany's DAX Index achieved this feat recently. Take a look... Like the S&P 500 in the U.S., the DAX is Germany's benchmark index. It holds a broad swath of German stocks to represent the entire market. But unlike the S&P 500, the DAX didn't rush back to new highs as quickly after the COVID-19 bust. It took several more months to reach new highs. But now that it has happened, we can expect these gains to continue. Since 1990, breakouts like we are seeing today often lead to outperformance over the next year. It could mean double-digit gains in Germany's market. Check it out... German stocks have been great wealth-generators for three decades... returning a healthy 7.7% a year. But you can do even better by only buying after new highs... Similar cases have led to 7% gains in three months, 10% gains in six months, and a solid 11% gain over the next year. Those are impressive returns for a mature market like Germany. You can easily invest in the German market through the iShares MSCI Germany Fund (EWG). This simple fund tracks the German market and offers the easiest way to make this bet. The COVID-19 crisis isn't over yet. But when it comes to the markets, German stocks have put the pandemic behind them. So if you're looking to add exposure outside of U.S. stocks, history shows buying German stocks is a good idea. Good investing, Chris Igou Editor's note: Make sure you're signed up for our online event tonight. It'll likely be the only time all year you'll see Steve, Austin Root, and Dr. David "Doc" Eifrig sharing their thoughts on the market together... and giving away free recommendations. Plus, it's completely free to tune in. Just RSVP here to join us at 8 p.m. Eastern time. | Further Reading "We're in the middle of a market Melt Up," Chris says. Stock valuations are sky-high right now. While that might seem like a warning sign that a crash is coming, it's actually good news for a market like today's... Read more here: What Near-Peak Valuations Mean for Stocks. Certain sectors serve as a yardstick that points to the health of the overall market. When these "leading sectors" hit new highs, it's usually a sign that the gains can continue... Get the full story here: Sentiment Hits a Multiyear High in This Crucial Sector. |
INSIDE TODAY'S
DailyWealth Premium It's time to buy a heavyweight in both renewables and robotics... Germany isn't the only foreign market with good opportunities right now. One Swiss company is dominating both energy and robotics for our future. And it has major upside potential as a result... Click here to get immediate access. Market Notes THE BABY BOOMER GENERATION COULD BE A TAILWIND FOR THIS STOCK Today, we're checking in on a company that benefits as the population ages... Longtime readers know our colleague Dr. David Eifrig is bullish on the health care sector. As the Baby Boomer generation gets older and needs more medicines and treatments, health care stocks should see huge gains. Today's company is working hard to provide care for ailing seniors... Eli Lilly (LLY) is a $200 billion pharmaceutical giant. It develops and produces a range of important medications, from diabetes treatments to cancer drugs. The company has also been working on a therapy to slow Alzheimer's disease... In fact, its Alzheimer's drug donanemab recently saw positive results in Phase II clinical trials. With an estimated 5.8 million people suffering from Alzheimer's disease – 80% of those being 75 or older – the need to slow this disease is crucial. As you can see, LLY shares have surged in recent months. The stock is up 75% from its March lows, and it just hit an all-time high. As long as Eli Lilly continues to provide essential treatments to American seniors, this stock should continue higher...
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