Today’s space race is incredibly exciting!
I don’t know about you, but the idea of everyday people being able to buy a ticket to visit space intrigues me.
Not to mention all of the space-age technology in play like satellite internet, exploring Mars, and even the potential for harvesting resources from asteroids.
Much of the new space technology has been made possible by reliable rocket boosters that create enough force to escape Earth’s gravitational pull.
Did you know that the escape velocity to exit Earth’s gravity is 6.96 miles per second?
That means to get into space, a rocket has to move just over 25,000 miles per hour. Talk about some serious power!
As we kick off a brand new week, I want to highlight one area of the stock market that’s poised to rocket higher.
And just like one of Elon Musk’s rockets, these stocks have already left the launchpad and are approaching a sort of “escape velocity” to leave the market’s gravitational pull.
There are three key “rocket boosters” propelling these stocks higher. And it’s not too late to jump on board and watch your profits soar!
But you need to invest now before these three boosters drive stock prices into orbit…
“We Have Liftoff…”
In an alert last week, I sent you a chart showing how financial stocks are breaking to new highs after years of sitting on the launchpad.
Now I know what you might be thinking…
“Wait a second… Are we talking about financial stocks? I thought we were looking at rocket stocks!”
Yep, sorry if that’s a disappointment.
But quite frankly, if you have the chance to make high-flying profits, does it really matter which area of the market that money comes from?
When you have a group of stocks trading sideways for as long as the financial area has and then that area breaks to a new high, there’s potential for a huge profit as new investors pile into the new market leaders.
And in the case of financials, three major forces are driving the entire sector higher.
I’ve been making a living and providing for my family through the investment industry for more than two decades.
And I can tell you that financial stocks are poised for one of the best bull markets I’ve ever seen!
So I’m pulling out all of the stops to make sure that you:
A) understand how big this opportunity could be, and
B) get your investments in place so you can profit from a surge in these important stocks.
So let’s look at the three propelling forces driving financial stocks higher.
Rocket Booster #1: A Rise in Interest Rates
There’s been a lot of talk about the recent rise in interest rates.
Many investors (including me) are worried about the effect these higher rates will have on some of the more speculative tech stocks.
But do you know which stocks do well when interest rates rise?
That’s right — financial stocks!
That’s because when interest rates rise (specifically long-term interest rates like the 30-year Treasury yield), banks can charge more for the loans they offer.
That leads to higher profits and naturally drives stock prices for these financial firms higher.
Now, some experts will tell you that the move in interest rates has already happened.
In fact, I saw some reports this weekend complaining about how interest rates have been soaring higher — as if this move that we’re seeing should run out of steam soon.
But if you take a look at history and see where interest rates have been in the past, the recent move is barely a blip on the radar!
And as the economy reopens following the coronavirus crisis and businesses get back to normal, I expect to see rates continue to move much higher.
That’s great news for financial stocks.
And higher rates will provide rocket fuel for these plays to continue to add to their recent gains.
Rocket Booster #2: A Global Economic Reopening
As the world emerges from this coronavirus nightmare, financial companies will play a vital role in helping people and businesses get back on their feet.
On the consumer side, we’re already seeing spending pick up in a big way. People are ready to go shopping, travel, and enjoy being with loved ones again.
As these purchases accumulate, banks will enjoy transaction fees.
And businesses will also need capital to rebuild and get back to work.
This capital will be used to open new factories and other business locations, hire more workers, purchase equipment, and plenty of other reopening purposes.
Traditional banks will benefit from new loans at higher interest rates.
And larger investment banks will see profits rise from investment banking transactions where they help companies sell shares of stock or new bonds.
One other benefit that not too many people are talking about right now is the bank’s provisions for loan losses.
Banks must make periodic estimates about their current loans and the probability of some of the loans not being repaid.
During the coronavirus crisis, these loss estimates were revised higher because businesses had a higher chance of failing and not repaying the bank.
As potential losses rose, the money set aside to cover these potential losses cut into earnings. So on paper, the banks had to reduce earnings to account for the higher risk.
But now that the economy is recovering and businesses are reopening their doors, the provisions for loan losses can be written down.
These write-downs will naturally drive profits for the banks and further propel financial stocks higher.
And as you’ll see in just a moment, these higher profits will lead to more income in your pocket!
Rocket Booster #3: Fewer Fed Restrictions
Some of the biggest financial stocks have been held back by restrictions on dividends and share buybacks.
When the coronavirus crisis hit, the Fed placed restrictions on the largest banks to keep them from returning too much capital to investors.
Instead, the Fed wanted banks to keep plenty of cash on hand as a safety precaution.
Now that the economy is in the early stages of recovering, it’s likely that these restrictions will be lifted.
Both Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen have had positive things to say about the banks’ stability throughout this crisis.
And Wall Street traders are anticipating more freedom for banks at the end of the second quarter.
That means in the second half of 2021, we could see banks increase their dividends while also buying back shares.
Remember, when a company buys back shares, it decreases the number of shares outstanding. So every share you own represents a larger percentage of the entire company.
With bank profits set to accelerate, fewer shares simply means there will be more profits (and more cash allocated for dividends) for every outstanding share remaining.
So by owning these stocks today, you’ll not only see the market value of your stock increase. You’ll also enjoy more income!
All told, this is shaping up to be a perfect environment for financial companies. So it’s a great time to be invested in the strongest names in this group.
Make sure you check out the three stocks I recommended last week.
And stay tuned to my Twitter feed for my day-to-day thoughts on the market, stocks to watch, and new opportunities to grow your wealth.