Why I’m The Most Bullish On The Stock Market I’ve Been Since 1995
All the “pieces of the puzzle” are falling into place to convince me to become the most bullish on the stock market I have been in ten years. Here are a few of those reasons.
Let’s start out with what I mentioned in last weekend’s commentary:
Interest rate hikes will soon be ending. This alone could spark a mega-market rally.
The Big Boys are showing more and more buying confidence. Their enormous buying power is what drives markets higher.
Earnings are rising much higher than stock prices.
There is a TON of cash on the sidelines, waiting to be deployed.
I am seeing TONS of great charts – stocks “sitting on ready” to break out to new highs.
Now let’s look at a few of those bulleted items above in greater detail.
Interest rate hikes: We expect another ¼ point rise in December, and maybe one last ¼ point rise in January, then that should be it for this
market cycle. The last time the Fed stopped raising interest rates was back in 1995, and we know what happened to the market after that!
The Big Boys are buying: Trading volume is always higher this time of the year, as year-end portfolio “window-dressing” takes place. The institutional investors will be piling into the strongest stocks of the year to show that they had them in their clients’ portfolios by the year-end. So this will naturally make the strong stocks even stronger in terms of price appreciation.
In addition, the Big Boys are going to jump-start the traditional January rally early this year, as they have been doing the past several years. Last Thursday was December 1, and you saw what happened – a huge rally day. Expect more days like that in both this month and next.
Finally, about 70% of all pension funding occurs between Thanksgiving and April 15. The market will benefit from this buying pressure the next few months.
Strong earnings growth: Earnings growth is accelerating, meaning that the rate of growth is increasing. This is causing growth stocks to
become more and more “undervalued” when compared to their price-to-earnings ratios, which leads to even more buying, etc. In fact, I read just
this weekend that a world-class stock picker thinks that the growth to P/E ratios are the best he’s seen in over 25 years!
Ton of cash on the sidelines: Up until very recently, pessimism has ruled on Wall Street. That is changing rapidly due to several factors:
Investors are finally “waking up”. They are finally realizing this bull market is for real, the economy is firing on all cylinders (something the media
has tried its best to keep from the public) – delivering over 3% growth for 10 straight quarters, with the S&P 500 racking up double-digit
earnings for 14 straight quarters. They are realizing the “train is leaving the station” without them, and they are starting to pile into the market in
droves.
Key stock market indexes are now at 4 ½ year highs. Nothing succeeds better in the stock market than success, and new highs! Remember,
the public never gets interested in the market at bottoms. This market strength will aid investor enthusiasm.
Oil prices are settling down, boosting consumer confidence. As a result, consumer spending has picked up. Retailers are expecting a very
healthy holiday season.
The housing bubble appears to be losing some air. That will probably mean hordes of real estate investors will be cashing out of that sector and moving that money into the stock market.
Even the media is finally deciding it can’t hide the obvious from the public, and is becoming more upbeat on the economy. This will only help enflame investor optimism.
And last, but not least – I am still seeing TONS of great stock charts: It’s getting harder and harder to pick the best charts of stocks to buy, since there are so many of them! But this is a great problem to have.
So what stocks should we concentrate our efforts (and funds) on? Think small–cap growth stocks.
For the last 10 years, small-cap value stocks have “ruled the roost”. This is almost always the case in a lower interest-rate environment. This is
why housing, real estate investment trusts (REIT’s), mortgage companies, energy, etc. ruled over the past few years.
But in a higher interest-rate environment, growth stocks rule. In fact, the last time the Fed raised rates, the Russell 1000 Growth Index jumped
30.33%, while the Russell 1000 Value Index lost –7.30%. When the yield curve gets flatter, which is what’s happening now, it squeezes the profit
margins of financial stocks, which tend to dominate the value indexes. We are already seeing the professional investors starting to switch out of
value stocks into growth stocks.
Also, small cap stocks need volume to propel their prices higher. The next two months usually see the highest trading volume of the year. So
small-cap growth is where to focus your investment funds for now, and the foreseeable future.
I am about to start the Gun To The Head portfolio. This is a group of five stocks that, if someone held a gun to my head and said “Make me 30%
next year, or else!”, I would immediately think of buying to avoid disaster.
And I am thinking about having two GTTH portfolios – one with larger, more conservative type stocks, and one with much smaller, aggressive
type stocks. I can’t tell you how many times some of our Members have asked me, “Hey – I know you know your stuff. But I don’t have time to
learn your system. Just tell me your top five favorite stocks, when to buy, and when to sell. That’s all I want!”
Well, those Members are about to get their wish. We want to have something for everyone here at Trade Your Way To Wealth!
In conclusion, I expect to increase my and my TYWTW Members personal wealth 25 – 50% in the next five months. There’s never been a
greater time in the last 10 years to do that than right now.
Why don’t you join us? Become a TYWTW Member today!
