The Hottest Sector in the Stock Market (Hint: Not Gold)

The S&P 500 just hit a new high on Tuesday, closing at 2,152.14.

Like Clinton shrugging off a criminal prosecution, this bull market keeps beating back uncertainty and bad news…

Stagnant global economic growth and an historic debt bubble? No worries.

Negative interest rates causing a meltdown in European banks? Nothing to see here.

Brexit leading to a potential crack-up of the EU? It’s just a flesh wound!

This may be the most resilient bull market ever. It just keeps moving higher.

And that’s just fine with us. We don’t try to predict what the market should be doing. We just follow the trend wherever it takes us to be on the right side of the trade.

And today we’re following a trend in a sector that’s performing better than the rest…

Central Bank “Safe Spaces”

Skeptics without a solid trading plan have been worried about stocks plummeting ever since the global financial crisis of 2008-09.

But the lesson investors have taken away over the last seven years is that there’s no market problem central banks won’t remedy.

We saw this most recently with Brexit…

Just days after the Brits voted to leave the European Union, markets were in a tailspin… $2 trillion of stock market value was erased in the Friday following the vote.

But the Bank of England, the European Central Bank and the Federal Reserve let us know that further stimulus was available and that positive interest rates are essentially extinct in modern finance.

Not surprisingly, that made investors feel warm and fuzzy. The monetary nannies made global markets “safe spaces” once again. So the masses piled back in.

And frankly, what other options do most people have? Interest rates have been at zero for more than seven years in the U.S.… and they are negative in Europe and Japan.

Investors remain in a desperate search to find yield somewhere, anywhere. And it’s this quest that’s been driving the hottest performing sector in the stock market…

Ride This Wave Now for Profits…

If you look back to the bear market lows in the midst of the financial crisis in 2009, you’ll see that one sector has obliterated others by a huge margin… and that’s real estate investment trusts (REITs).

To see how much REITs have outperformed U.S. bonds and stocks, look at the chart below. It compares the total return of the Vanguard REIT ETF (NYSE:VNQ) to the S&P 500 and the Barclays U.S. Aggregate Bond Index ETF (NYSE:AGG) since March 2009:


As you can see, REIT returns have crushed stocks and annihilated bonds since the financial crisis lows.

It’s not hard to understand why. Non-existent interest rates for the past seven years have created incredibly strong demand for income investments tied to a so-called “safe-haven” like real estate.

Yield demand intensified even more this year when bond yields collapsed as the effects of negative interest rates in Europe and Japan took hold.

And there are no signs that the yield-seeking momentum in REITs is slowing down…

My proprietary trend following system shows that REITs are still in an uptrend. Remember, trends always go farther than we can imagine or know.

A good way to take advantage of this uptrend in REITs is the Vanguard REIT ETF (NYSE:VNQ), an ETF that invests in stocks issued by a broad range of real estate investment trusts. Just use a stop-loss to protect your downside.

Keep in mind, my Trend Following subscribers are able to see my proprietary system’s strongest “buy” signals in each month’s issue.

While VNQ isn’t the highest-ranked signal produced by my proprietary system, it is a solid option if you’re looking to ride another trend that’s currently moving higher.

Please send me your comments to Let me know what you think of today’s issue.


Michael Covel
for The Daily Reckoning

The Daily Reckoning