The Stock Market Is Zooming Too
The Nasdaq is back near a record high... The S&P 500 has rallied 40% twice in 18 months... The stock market is zooming too... The economy has been getting 'less bad'... Trade the market you see, not the one you want... But beware the risks...
Just like that, we're back near 'record high' territory...
The Nasdaq Composite Index – which has led the major U.S. stock indexes all year, through the ups and downs – inched within 1.4% of a new all-time high yesterday... almost erasing all of its losses from the coronavirus crisis crash... before finishing down about 0.7% today.
Meanwhile, the benchmark S&P 500 Index just posted its best 50-day stretch in history. It's up nearly 40% from its most recent low on March 23. The story is similar with the Dow Jones Industrial Average... which is up 41% since it bottomed on the same day.
This is rare market behavior...
We can now only speculate what would have happened over the past two months if the Federal Reserve didn't step in with record stimulus and its "blank check" promises to rescue the economy and inject liquidity into the markets...
But we have a feeling the U.S. stock market might've looked like the Wild West of Oil that we saw in April, which included negative futures prices for a day. Alas, that mess didn't carry over into stocks...
Looking back, the S&P 500 has now rallied 40% twice in just 18 months...
Around Christmastime 2018, the S&P 500 bottomed out 19.7% from its previous high. Then, the index climbed 44% to an all-time high this past February... dropped more than 30% when COVID-19 struck... and was back up 40% again before falling slightly today.
Aside from marking some wild swings in a relatively short period of time, looking at this behavior, you can make an argument that this is bull market-type behavior – with a big "if" that I (Corey McLaughlin) want to explain...
You see, these definitions aren't exactly cut and dry.
So if we do just a little bit of rounding up on the 19.7% drop at the end of 2018 to 20% (the commonly accepted but kind of arbitrary definition for decline into a bear market), and say the longest bull market in history actually ended in 2018 instead of a few months ago...
Then, we're in the ballpark of the most common definition of a bull market... That's a situation in which stock prices rise by 20%, usually after a drop of 20% and before a second 20% decline.
And typically, according to data that our Stansberry NewsWire editor C. Scott Garliss shared with us today from Bespoke Investment Group, moves of this size in this short of a period have been followed by even more gains a year later...
Of the five prior periods where the S&P 500 rallied 25%+ over a 40-day period... one year later, on both an average and median basis the S&P 500 rallied more than 38%.
At the same time, though, the S&P 500 has never dropped more than 30% in a year and finished positive, so that's a piece of evidence for bears. (This is why analysts define bull markets in the rear-view mirror.)
But at this point, it's not just new tech and "pandemic" darlings like Zoom Video Communications (ZM) – now up a ridiculous 200%-plus since the start of the year – that are charging higher today... (Scott wrote about these stocks in the May 7 Digest.)
Over the past month, stalwart "mega-caps" like Apple (AAPL), Home Depot (HD), Boeing (BA), and UnitedHealth (UNH) have been zooming, too, leading the ole' Dow Jones Industrial Average higher...
Moreover, in the economy, things are starting to get 'less bad'...
As DailyWealth editor Dr. Steve Sjuggerud noted in this morning's issue, the news we're seeing about the U.S. economy has turned decidedly "less bad."
In the past two days alone, we've read on the NewsWire...
Jobless claims are slowing down... Employment data points to an improving economy... U.S. factory orders may have formed a bottom in April...
Non-manufacturing data for May shows recovery... Chinese oil demand is approaching pre-pandemic levels... Mortgage applications for purchases are surging again...
"Less bad" is why Steve says – even amid a 40% rally – it's time to buy stocks. As he wrote this morning in DailyWealth...
Right now, most folks are scared. They're selling, expecting the worst to happen.
The reality is that things are getting less bad. The COVID-19 health crisis data isn't great... But it's less bad than it was two months ago. Similarly, the economic numbers are bad... But they're less bad than what we saw in April.
On top of that, the market is soaring. The S&P 500 is now in a clear uptrend after jumping 38% from the March bottom.
Longtime readers know I always follow the trend. And my friend, the trend is up. Who are we to argue?
As we wrote in the May 11 Digest, the recovery would happen when "we" said it would...
We've mentioned this oft-forgotten idea before... 70% of the American economy comes from consumer spending. In 2019, that was $13.28 trillion.
And people are indeed getting back out in the world as the news becomes less bad...
An early evening trip to home-improvement retailer Home Depot, like the one we made last night outside Baltimore, would tell you that. The place was as crowded as I've ever seen it, much like Costco Wholesale (COST) was during a visit several weeks ago.
And Maryland Gov. Larry Hogan just yesterday green-lighted the "Phase 2" reopening for the state... which doesn't officially go into effect until tomorrow evening.
Now, this doesn't mean the economy will be totally 'good' sometime soon...
It doesn't mean we won't see a coronavirus "second wave" here or anywhere else in the next few months or in the fall that will give investors more risk factors to consider... or that people won't be wearing masks for the next year in public.
As we write, the number of reported COVID-19 cases in the U.S. is still growing... nearing 1.9 million.
Nor does this market behavior mean that you shouldn't hold proper allocations of cash and "hard assets" like gold to protect against downside in stocks and inflation stemming from central bank stimulus policies, as we've emphasized over the past few months.
As our Director of Research Austin Root advised to subscribers of our Stansberry Portfolio Solutions products earlier this week...
Investing in the current market requires an extremely long-term outlook and holding period to be confident in a positive outcome.
As such, we recommend you extend your investment horizons, lower your return expectations, and adjust your spending and saving habits accordingly.
This Fed-fueled rally in stocks also doesn't erase our country's long-term problems and risks to the economy, as Porter long ago identified, and we relayed in yesterday's Digest about "The Battle for America."
Nor does it mean that what the Fed has done will not be without consequences... or that we won't still see a wave of corporate bankruptcies, as Stansberry's Credit Opportunities editor Mike DiBiase explained in Tuesday's Digest.
But this is why experienced investors and traders consistently preach 'living in the moment'...
In other words, it's critical to trade the market you see today, not the one you want...
The more short-term oriented stock traders in our (virtual) office, like Ten Stock Trader editor Greg Diamond, consistently give and follow this advice.
Anyone who has followed Greg's technical analysis work for any length of time (and you can read his intraday market analysis for free right here) knows that he regularly adjusts his outlook based on the price action of what's going on in the market and its various sectors.
Today, he told us that the current market setup is a glaring example of the importance of taking your emotions out of the equation. As Greg wrote in a private e-mail...
This market is a perfect example in terms of bearish fundamentals, economic vs. asset price dislocations...
You want to trade that bearish mindset (and volatility) but Fed games and price action is what is seen and that is what you have to trade.
Just this morning, for example, Greg told readers to forget about that craziness in oil we saw last month, when in addition to negative oil prices, tankers and storage facilities were literally filled to the brim...
Today, business is getting back on track and oil futures contracts are trading back in correlation with stocks...
So Greg is again watching key price action and technical support and resistance levels in the sector to eye up recommendations for his Ten Stock Trader subscribers over the next few weeks.
This approach can be applied to the long term too...
Austin talked about this idea in another way as recently as last week during our first-ever "Alliance Town Hall" event...
Austin was responding to a question from an Alliance member who – given the market rally – was concerned about a pullback. However, he also wanted to buy more "forever stocks" that he could hold for 10 years or more. As Austin said, in part...
You just want to make sure to just focus on if it's a good investment now. Forget what it has done in the past.
And this reminds us of something Porter said... way back during our 2020 preview event in January. Given everything that has happened since then, that feels like a few years ago...
Make hay while the sun shines... and buy businesses that are going to succeed whether or not there is a recession.
You wouldn't have gone wrong – and still won't – following that advice.
Why Oil's Gain Is Benefiting the Banks
Stansberry NewsWire editor C. Scott Garliss connects the dots between rising oil prices and banks. Watch his latest video with our colleague Jessica Stone...
Click here to watch this video right now. And make sure you subscribe to Stansberry Research's YouTube page to get all of our free videos as soon as they're posted.
New 52-week highs (as of 6/3/20): BlackLine (BL), GreenTree Hospitality (GHG), JD.com (JD), KraneShares MSCI All China Health Care Index Fund (KURE), MarketAxess (MKTX), NetEase (NTES), Intellia Therapeutics (NTLA), Flutter Entertainment (PDYPY), Rollins (ROL), Sea Limited (SE), and The Trade Desk (TTD).
In today's mailbag, feedback on yesterday's Digest about "The Battle for America." Don't forget, you can grab a copy of Porter's book of the same name today for just $4.95. Click here for more information. And as always, send your comments, questions, and concerns to feedback@stansberryresearch.com.
"Porter called it long ago. Unfortunately he was right on target. Total chaos and anarchy." – Paid-up subscriber Richard L.
All the best,
Corey McLaughlin
Baltimore, Maryland
June 4, 2020