A Broad Bull Market Can Continue
Editor's note: We're sending this week's research a bit early to accommodate our company's holiday schedule.
You won't hear from us next week, as we're giving our team some well-deserved time off to celebrate the holiday season. Please look for your next issue of This Week on Wall Street on January 3, 2025. Stansberry Investor Suite subscribers can expect new research then as well.
As usual, we'll all try to take our minds off the markets for the holidays. But even with markets closed and family around, investors will still have a big question hanging over their heads...
Just how long can this bull run continue?
To that end, I'm sharing an essay from our colleague and editor of True Wealth, Brett Eversole.
As Brett explains, we're witnessing a rare broad bull market today... and moves like this tend to be followed by continued returns for investors.
Stocks Are Extended... And That's a Good Thing
The postelection boom has been nothing short of incredible...
The S&P 500 Index was up nearly 6% in November, its best one-month return in a year. And stocks in just about every sector of the U.S. stock market have been moving higher.
Now, the major indexes have gotten stretched above their long-term trend. You might think that's a bad thing... But history disagrees.
Instead, this kind of broad boom is rare. And when it happens, we can expect the good times to continue.
Let me explain...
A bull market is good... But a broad bull market is even better.
That's when it isn't just a few stocks pulling the market higher, but a majority of stocks all soaring at once.
A broad boom means the market is healthy. And a healthy bull market can keep rising – no matter how crazy it might seem at the time.
That's the kind of boom we have right now. All three major U.S. stock indexes are rallying... And they all hit a rare extended level recently.
Specifically, the S&P 500, Nasdaq Composite Index, and Dow Jones Industrial Average all rallied more than 10% above their long-term trends last month.
To measure the long-term trend, we're using the 200-day moving average (200-DMA). That's just the rolling average of the past 200 daily closes. When stocks are above that average, they're in an uptrend.
Here's what the trend has looked like for the S&P 500 over the past two years. As you can see, stocks have been booming since the 2022 bottom...
The index entered a strong uptrend early last year. Now, though, we've gone a step further. The postelection rally has sent all three major indexes more than 10% above their 200-DMAs.
That's rare. It has happened less than once a year since 1990. And while you might think this is a sign of a slowdown ahead, history tells a different story.
Not only do stocks not tend to fall after extended runs like these, they usually outperform. Here are the S&P 500's gains after these setups since 1990...
As you can see, stocks aren't due for a slowdown. They're set to continue outperforming. It's surprising... but true.
Similar instances led to gains of 4.2% in six months and 11.8% in a year. That's solid outperformance versus just buying and holding. Plus, the market was up 90% of the time a year later.
The Nasdaq and Dow show similar outperformance after these occurrences. So according to history, this broad rally is exactly what we want to see as investors. It's healthy – and it has a great shot at continuing.
It's easy to nitpick a bull market. But if you had done that over the past two years, it would have cost you dearly. Don't make the same mistake now.
Stocks are soaring... But it's a broad, healthy boom. And according to history, the good times should continue in 2025.
Good investing,
Brett Eversole
What Our Experts Are Reading and Sharing...
As the year comes to a close, I want to share my pick for best investing book of 2024 (even though it was first published in 2005)...
That's Poor Charlie's Almanack, written by Warren Buffett's longtime partner, Charlie Munger. As most folks know, Munger passed away last year at age 99.
Even before this development, publisher Stripe Press had arranged to release a new edition of Poor Charlie's Almanack. The book is a timeless collection of speeches that share Munger's wisdom on people, business, psychology, and investing.
(Incidentally, our own Whitney Tilson was pivotal in creating the first edition, having transcribed five of Munger's speeches when he gave them.)
There's no better way to spend a cold winter day than reading this classic. And Stripe Press has helpfully created a free, interactive version of the book that you can read online here.
We hope you enjoy it as much as we do!
New Research in The Stansberry Investor Suite...
Speaking of Charlie Munger, he and Warren Buffett famously avoided technology stocks at their holding company Berkshire Hathaway (BRK-B), until getting into Apple (AAPL) in 2016.
They chose to remain in their "circle of competence," investing only in businesses they understood, like insurance and other simple endeavors.
Technology changed too fast for them to keep up.
Indeed, tech has always been a fast-changing sector. Today, between advances in artificial intelligence ("AI") and the incoming administration, the rate of change seems faster than ever before...
AI has seen rapid growth – even if we think AI-related stocks have gotten a little expensive – and that's leading to rapid changes in all kinds of business models.
At the same time, President-elect Donald Trump is going to change the rules for a lot of industries once he takes office. He's likely going to roll back some regulations for health care and drug approvals. The defense industry may get a spending shakeup. And the Big Tech companies will need to navigate new antitrust and monopoly requirements.
To prepare for what lies ahead, the Stansberry Innovations Report team is taking a whirlwind tour of the different businesses in their model portfolio this month...
They'll discuss their holdings, the state of the world, and good old U.S. politics. And they'll cover the many changes afoot in cybersecurity, automation, travel, entertainment, advertising, and more.
If you want to know what's in store for the next four years, this is the report to read. Stansberry Investor Suite subscribers can read the entire report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our special package of research – click here.
Happy holidays,
Matt Weinschenk
Director of Research
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