A Brand Spankin’ New Bull Market

MarketCycle Wealth Management

 

PUBLISHED on: June 26, 2020

Good things are happening in the economy.  There has been unprecedented bullish stimulus from both the Federal Reserve and the U.S. Government (and this is being duplicated across the globe).  Businesses are now re-opening.  The market climbs a Wall-of-Worry and right now consumer sentiment and investor positioning are cautious, which is bullish.  Market internals and breadth are getting stronger each day.  Almost all of MarketCycle’s system of risk indicators have flipped to bullish.  And a temporary weakness in the USDollar has been giving a boost to large-cap U.S. stocks.

We got a “V” shaped stock market rebound and we are likely to get a somewhat “V” shaped economic recovery as well, although it may struggle to reach full strength until sometime after the coming U.S. Presidential election:

 

Election jitters?  In the near-term, the U.S. market might remain a bit volatile as it attempts to come to terms with a Biden Presidency, and Biden is now leading by double digits in the polls.  The market will eventually become numb to this news just as it does to every other bit of news.  The worry is that a Biden win might mean tougher conditions for corporations (thus stocks) because he would raise the business tax rate from 21% to a still very fair 28%.  On the positive side, he would stop the trade war with the rest of the globe while President Trump definitely plans to accelerate it if he wins a second term (the trade war is why the stock market basically just went sideways during 2018 and 2019).  And historically and despite popular belief, the market generally performs better under Democrat Presidents (with Republican President Ronald Reagan being an exception).

Wall Street opinion poll:

 

Leading Economic Indicators:  The U.S. economy is moving in a positive direction ahead of the normal timetable.  The incredibly important Conference Board Leading Economic Indicators (of fundamental economic data) tells us what is coming because they predict future economic conditions.  May’s numbers are now in and they are shouting:  BULLISH! 

 

INFLATION?  Inflation is when the cost of everything that we buy rises in price because the value of the USDollar decreases, requiring more Dollars to buy whatever we want or need.  The value of the USD decreases because of continuous ‘money printing’ and near zero interest rates and both are embraced in order to continuously stimulate an economy that can’t stand up on its own two feet.  Why do we hold an allocation to GOLD bullion in our client portfolios?  Gold protects against inflation, now and into the future.  In the past four months the U.S. deficit has become a real problem and it will eventually (in 15 years?) cause massive inflation, or at least that is what I predict.

Courtesy of Bloomberg Business.

 

Summary:  The economy always lags the stock market, and it is now improving as shown by the Leading Economic Indicators (above).  Stocks may need to gyrate sideways or even pull back a bit before they can then proceed higher.  But in my opinion, we may have just entered into a brand spankin’ new bull market that may slowly grind higher for the next decade (but with some of the usual bumps in the road because we don’t want it to be boring).  As I continually repeat, even in a strong bull market the stock market zig-zags in its upward trajectory and sometimes it pauses (consolidates sideways) in order to catch its breath.  It takes two steps forward and then one back… and then three forward and then gyrates sideways… and then two steps forward and one back.  And every time the market takes that temporary backward step we all become filled with confusion and fear because it always seems like a new and unusual event to us.  Unless the event is really prolonged and catastrophic, as in the Financial Crash of 2008, we are prone to eventual forgetfulness.  It is this forgetfulness about nothing moving in a straight line that gives me something to write about each month. 

 

 

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A concise reply to a recent emailed request for an online will suggestion:

 

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MarketCycle Wealth Management | Stephen Aust
MarketCycle Wealth Management, LLC is a Registered Investment Advisor. Information presented is for educational purposes only, is not considered an individualized recommendation or personalized investment advice, may not be suitable for everyone and does not intend to make an offer or solicitation for the sale or purchase of any securities. All investments involve risk and unless otherwise stated, are not guaranteed. Past performance or performance charts are not a guarantee of future performance. Portfolio performance charts are shown net of fees so the management fee, brokerage fees, trading fees and ETF fees have already been subtracted. Current performance may be higher or lower than that shown and differing accounts may show different results. Investment returns and principal value in client accounts will fluctuate. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Be sure to consult with a tax professional before implementing any investment strategy.