Three Reasons to Be Bullish on U.S. Stocks Today

A new all-time high is just around the corner... What's next for the markets?... Three reasons to be bullish on U.S. stocks today... Checking in with the folks at the roundtable... The last guests haven't arrived yet... The trend is your friend...

We're once again within spitting distance of a new all-time high in the S&P 500...

The benchmark stock index closed today at 3,380... up 1.4% on the day. Its all-time high was set back on February 19, when it closed at 3,386... before the market plunged for a month at the height of the COVID-19 panic.

The stock-market rally since late March has been one for the record books. And now that the broad market is up more than 50% off its bottom, many folks are wondering what's next...

That includes us here at Stansberry Research. You see, this was the exact topic on our most recent in-house, idea-generation conference call a couple of weeks ago...

Once or twice a month, our entire analyst team gets on a call to talk shop. It gives us a chance to hear different perspectives. And we can see which ideas – big or small – others are working on within the company.

The question for this call was simple... Where would you put your money to work given today's market?

Normally, the spread on the answers is pretty wide. After all, we have folks from all different backgrounds and mindsets working here at Stansberry Research. Some analysts turn out to be bullish, while others are ready to sock away cash for a rainy day.

But this time was different... The majority of the folks on the call feared what could come next. They were concerned that today's historic rally could be running out of steam.

It's easy to see why investors might be scared. Just pick your favorite doomsday scenario...

The economy isn't booming like it was before the COVID-19 pandemic and ensuing crisis. Unemployment remains high. We have no clear path to a vaccine that will solve the pandemic yet. And the "trade war" between the U.S. and China has resurfaced in the news.

I (Chris Igou) understand why some of my colleagues are worried. These are legitimate concerns.

We don't have answers to all of these looming demons. But in today's Digest, I'm here to tell you that while there are boogeymen hiding in the dark today...

There always will be. And there always have been.

My point is... you can always find a reason not to buy stocks. But the truth is, stocks are still a great opportunity for investors right now, despite all these worries.

Even more, in this essay, I want to share three major reasons to be bullish on U.S. stocks today. These tailwinds could easily push stocks to new all-time highs in the near future.

First, we'll start with the folks at the roundtable...

It was a "buy the dip" strategy on steroids earlier this year... Back in March, when most investors were panicking out of stocks, some folks were stepping in and buying up shares.

These people weren't just market-savvy investors, either. They were insiders who were loading up on shares of their own companies.

That's right, these investors are the guys who have seats at the roundtable. They likely have a handle on how their companies make money. And they know when they're getting a good deal while buying their companies' stocks.

Now, before we go any further, I want to be clear about one thing... Reading insiders' stock actions can be a bit tricky – and sometimes it can be misleading.

Insiders can sell for many different reasons...

For one, they might have too much money in their companies' shares, so they simply sell some of their holdings to diversify into other assets. They could also decide to sell shares to buy a new car or pay for medical bills. It's tough to really know why they're getting out.

But when insiders are buying in a big way, it tells us one thing... They believe their stock is a good deal at the current price. And beyond that, they expect the stock price to rise.

We saw this kind of action play out across the broad market starting in March... These corporate insiders were buying hand over fist. A CNBC headline from back then summed it up...

I know what you're probably thinking...

"OK, so these guys nailed the buying opportunity in March. And the S&P 500 has soared to the cusp of a new high since then. But that happened months ago. Why should I care now?"

Well, as it turns out, some of these insiders are still buying in a big way right now...

Let's look at a few of the S&P 500 companies as a examples...

Looking back over the past three months, we've seen significant buys from insiders in companies like Bank of America (BAC), food-product distributor Sysco (SYY), and wireless-network provider T-Mobile (TMUS).

These are companies that are at the top of their respective industries. And it's unlikely that will change anytime soon. Think about it...

Bank of America is the second-largest bank in the U.S., with roughly $2 trillion in assets. Sysco is the largest food distributor in the country... It serves restaurants, health care companies, educational institutions, and more.

And T-Mobile needs no introduction... It's one of the largest cellphone-service providers out there. I'm sure you can attest first-hand that phone usage likely went up during the COVID-19 lockdowns in recent months. The pandemic likely had little effect on its business.

We've seen insiders at these companies buying up their own stocks over the past three months...

For example, insiders bought $2 billion worth of Bank of America stock. And they purchased more than $100 million worth of Sysco and T-Mobile shares in that span.

Now, this might not be the same magnitude of buying that we saw back in March. But what's important is that we're still seeing insider buying today. And that's a bullish sign for investors.

These insiders know their companies are going to be around in their industries for years to come... long after the COVID-19 pandemic is over.

And they know they work for one of the best companies in their respective industries, if not the best... So they've been loading up on shares as a result.

These insiders didn't just step in and buy in late March. They've been buying big throughout May, June, and July as well. I'm telling you this today for one reason...

Throughout history, these company insiders often buy at the right times...

According to a recent CNBC article, massive insider buying also took place in 2009, 2011, and 2016. The 2008 crisis brought one of the worst market falls in history.

But the article doesn't spell out how great each of these market calls actually were...

You see, once the dust started to settle in late 2008 and 2009, these insiders began to buy. While many investors were staying on the sidelines, they were setting themselves up to make strong returns from the rebound.

It proved to be the right call...

As we know, stocks started to soar soon after bottoming in March 2009. The share prices of many of the companies in the S&P 500 doubled within a year.

You didn't have to take big company risk on any individual stocks, either. Let's say you saw these insiders diving back into the market in late 2008. And you decided to follow their lead by simply buying into the S&P 500 toward the end of that year.

This assumes that you didn't quite peg the March 2009 bottom exactly. But even if you were off by a couple of months, you still did incredibly well...

The S&P 500 rallied 26% in 2009 alone. Again, that's if you missed the exact bottom. If you bought at the bottom, your returns would've been up 68% through the end of 2009. Either way, you would've done well by buying when the insiders were loading up on their shares.

In 2011, we saw a much smaller pullback in stocks. But again, it was an opportunity for these guys to load up on their companies' shares at cheaper prices.

Stocks have more than quadrupled since bottoming in 2009. And they're up 250% since the less significant fall in 2011.

Lastly, the insiders pulled it off again in late 2015 and early 2016. The market experienced a strong correction at that time... And once again, insider buying spiked.

Again, buying then was the right call. The S&P 500 is up more than 90% since bottoming in 2016.

Based on the past decade, these insiders have been solid market timers. And as you can see, following their lead is a good idea.

However, insider buying isn't the only reason to be bullish on U.S. stocks today...

You see, the folks who are usually last to the party also haven't arrived yet...

Unlike the company insiders, speculators tend to lack the ability to time markets. Emotions bleed into their final decisions. And they pile in at the worst times to buy.

These rash decision-makers are looking to steal a quick gain from the market. And it's the exact kind of behavior that can get them burned instead.

More importantly, when these speculators start playing with matches, it's a sign that the current move higher is running out of steam.

After all, if the speculators are the last ones to the party... and they've finally arrived... there's no one to push stocks higher to keep the party going.

Take bitcoin's meteoric rise in 2017, for example. The cryptocurrency was nearly doubling in value almost every month.

It went from $1,000 in January 2017 to $18,000 by mid-December. Speculators were seeing other folks making triple-digit gains... And they wanted in.

In late 2017, the only promise of bitcoin's rise was that someone else would buy it from you at a higher price... And folks kept buying.

Speculators were starting to jump in. I had friends who had never invested in stocks asking if they should buy bitcoin. The fear of missing out was seeping through their veins.

Then, the bottom fell out... And bitcoin fell back into the $3,000 range.

This pure speculation in 2017 was a sign of an unstable rally. Investors were betting on the "greater fool" to buy from them at some point down the road.

When this kind of sentiment enters U.S. stocks this time, you'll want to head for the hills.

But the thing is, we aren't seeing speculators overwhelm the market just yet...

A simple way to see this is through the Commitments of Traders report for the S&P 500.

It's a weekly report that tells us what traders are doing in real time. And it's a great contrarian indicator at extremes...

When speculators are "all in" on a trade, it often means that it's time to be cautious. Since these folks are usually the last to the party, it's typically best to do the opposite of what they're doing.

While speculators are definitely getting back into stocks right now, we aren't seeing this indicator at extreme levels yet. That's a good sign that this rally can continue. Take a look...

You can see that speculators are reentering the market. But you can also see that today's level of speculation is nowhere near peak levels.

The fact is... speculators are getting their feet wet once again. They've started to buy. But it's nothing to be concerned about yet.

We'll likely see much more speculation enter the market before the alarm bells sound and an ultimate peak happens.

And that brings us to the final major reason to be bullish today...

This might be the most important sign for U.S. stocks right now...

Roughly a century's worth of data supports this indicator. And it's a proven strategy that leads to outperformance over time...

Sure, it's a simple strategy. But it's darn effective.

You see, everyone generally believes that you want to buy low and sell high when investing. But that's actually not a great strategy...

After all, a stock that's trading at new lows can always fall further. So finding the exact "low point" of the stock is trickier than it seems on the surface. You're more or less placing a bet while you're blindfolded.

Instead, decades of data show that you want to "buy high and sell higher"... I'm talking about investing when the trend is in your favor.

Take the S&P 500, for example...

Since October 1928, the S&P 500's price return has been 5.6% per year. That's not bad. But it's not great either... It's simply what you would get if you would've bought into the S&P 500 and didn't look at it for nearly a century.

But instead, if you only bought when the S&P 500 was in an uptrend (above its 10-month moving average), you would have done much better...

Buying only into an uptrend like that has led to price returns of 9.3% per year over the past 92 years. So you're much better off buying when the trend is in your favor.

That's exactly where we are today. U.S. stocks, as measured by the S&P 500, remain well above their 10-month moving average. Just take a look at the chart below...

This is great news for investors.

When you add everything up, you see that it's still a great time to be bullish on U.S. stocks today...

Sure, the doomsday theorists have plenty of reasons to be worried...

The economy isn't booming like it was at this time last year. We're still seeing high unemployment. We don't have a vaccine for COVID-19 yet. And the dust-up between the U.S. and China continues... with no one sure what will happen next.

But as I've shown today, the signals are all around us for why stocks can keep moving up...

Today, the S&P 500 is in a strong uptrend. The insiders have given us the signal that it's time to buy. And the speculators haven't shown up to the party in droves just yet.

The reality is... stocks are a great opportunity right now. And even if you've missed out on the rally over the past few months, you still have a chance to make outsized gains in stocks right now.

Even more, buying today could lead to outperformance compared to the market's historical return of about 6% per year. Don't get caught on the sidelines as this market roars higher...

Consider buying U.S. stocks today.

New 52-week highs (as of 8/11/20): Booz Allen Hamilton (BAH), Home Depot (HD), and TFI International (TFII).

In today's mailbag, a pair of subscribers write in about one of Porter's predictions in a previous edition of The Battle for America. While Porter wasn't exactly right, he identified a big player in this year's election long before anyone else. As always, we welcome your questions, comments, and observations at feedback@stansberryresearch.com.

"So... the Biden team announced Kamala Harris as VP. Pretty sure Joe wouldn't finish his first term. Guess who Porter picked [in the past] to be the first lady President... Kamala Harris, before anyone knew who she was, except in California." – Paid-up subscriber Bruce K.

"On July 21, 2018 [in a Masters Series excerpt from The Battle for America], Porter wrote...

That's because the politician I believe will become the 2020 Democratic nominee, and likely the next president of the United States – is Senator Kamala Harris, from California.

You've probably never heard her name before...

But few people knew who Barack Obama was two years before he was elected president in 2008.

Sen. Harris is currently the junior U.S. senator from California, where she assumed office in 2017.

"We all know Biden won't last in office if he wins in November. So, my question is, does Porter have divine vision into the future?" – Paid-up subscriber Kevin S.

Good investing,

Chris Igou
Jacksonville, Florida
August 12, 2020