Sure, the market could weaken in the short term, but pullbacks are buying opportunities. And there's a secret boost for consumer spending going forward that you can profit from.
I can’t turn on the TV without some babbling head telling me the market is overvalued and earnings this quarter will be terrible… and “Oh my gawd, we’re doomed!”
“Sentiment is frothy,” they warn. “Valuations are too high!”
The professional worrywarts need to relax. Sure, the market could weaken in the short term. But pullbacks are buying opportunities. In fact, forces are falling into place for a rally in the fourth quarter and into the first part of next year.
One reason why is thanks to something you probably use every day. And it’s a secret boost for consumer spending going forward. And yes, you can profit from this … big time!
I’m talking about the price of gasoline. Gas is declining in price at a rate that’s rarely seen — and every time it has been seen, it’s been a great sign for economic growth.
Sure, the price of gasoline zigs and zags. But it’s trending lower. Heck, it’s even lower than it was two years ago at this time.
Now for the really good news: The U.S. Energy Information Administration (EIA) expects the price of gas to get even cheaper.
• The EIA forecasts the regular gasoline retail price to average $3.34 per gallon in the fourth quarter of 2013.
• It should get cheaper next year, too. The annual average regular gasoline retail price was $3.63 per gallon in 2012. It should run $3.52 per gallon in 2013 and drop to $3.40 per gallon in 2014.
This kind of price decline has happened only five times in the last 20 years. Each time, it has been a good sign for growth. It makes sense. After all, we know that rising gasoline prices choke economic activity; 72% of adults surveyed by Forbes say gasoline prices influence their spending.
Merrill Lynch estimates that every penny increase at the pump is equal to $1 billion in lost consumer spending. Therefore, falling gasoline prices boost consumer spending by the same amount.
And lower gas prices are probably boosting the economy right now. The only reason we haven’t seen it yet is consumer confidence is at a nine-month low due to the recent shenanigans in Washington. The Thomson Reuters index of consumer sentiment fell to 75.2 in October, down from 77.5 in September. This was the lowest figure since January.
But the “crisis” is over. Sure, we could have another budget fight in February. But that’s a long time for consumers to hold off buying that TV they wanted. And falling gasoline prices are putting more money in consumers’ pockets all the time.
So who wins in this scenario? More importantly, how can you invest to make the most of it?
I’ll give you three ideas:
Airlines profit in two ways. First, their fuel costs are lower, as the price of jet fuel is also down. Second, people who have more money in their pockets can afford to travel more. There isn’t an airline ETF anymore, but you can buy the big names individually.
Once people fly somewhere, they need a room, right? So, hotels will do well.
• Consumer discretionary
Retailers and others in the consumer discretionary category benefit when people are spending less at the pump. The Consumer Discretionary Select Sector SPDR (NYSE: XLY) and the SPDR S&P Retail ETF (NYSE: XRT) are worth a look.
Those are three ideas to get you started. Sure, you always need to be cautious with your money. But the professional worrywarts can sit on the sidelines. I’m ready for this economy and the market to hit the accelerator, fueled by low gas prices.
Sean Broderick is a resource strategist with The Oxford Club. To read more articles by Sean, visit here.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.