Mr. Market Isn't Paying Attention to the Bad News
The headlines haven't gotten any better...
The war in Iran remains unresolved. Average national gas prices are about $4.50 a gallon. Consumer sentiment is crashing. And no one knows when things will return to normal.
Despite all of that, investors have moved on... Earnings are strong. And stock prices just keep rising.
The S&P 500 Index rallied double digits in April... its best monthly performance since late 2020. According to history, this is a powerful signal to buy stocks. And it means we could see a 15% rally over the next year.
Let me explain...
April's Double-Digit Rally Points to Another 15% Upside
Once the market starts moving on from a crisis, more bad news can't drag stocks lower (at least, until the next disaster strikes).
We saw it with the pandemic in 2020... and with the tariffs last year. And it's happening again right now.
That doesn't mean the news coming out of the Middle East is any better. But the market stopped caring at the end of March. It has done nothing but move higher since then.
Overall, the S&P 500 is up more than 15% since bottoming on March 30. In April alone, it jumped 10.4%. You can see the rebound in the chart below...
This was a major snapback rally... But any time stocks rise this much, this fast, folks get spooked. That's especially true when the reason for the initial decline hasn't gone away.
Still, history shows we shouldn't worry...
Stocks rarely rally 10%-plus in a month. The last time this happened was in November 2020. And there have only been 13 other instances since 1950.
These rare setups signal strong momentum. They're also a positive sign for future returns. Take a look...
Overall, the S&P 500 is an incredible wealth-compounding tool... with 8.3% annual returns since 1950.
You can do better putting money to work when momentum is strong, though... specifically, after a double-digit one-month return.
Similar setups led to gains of 4.6% in three months, 11.5% in six months, and 15.4% over a year. That's nearly double the typical one-year return for stocks. Plus, the market was up 85% of the time a year after these double-digit one-month rallies.
A lot of investors expect war-related headlines to drive down stock prices... So they're stumped by the current rally. Even if you convinced them that the market has moved on, they'd still feel like they missed their chance to buy low.
The reality is that when stocks are rising, they tend to keep rising. The gains aren't over yet... A massive one-month rally is a great sign for future returns. And that means you want to stay long right now.
Good investing,
Brett Eversole
Further Reading
As the bad news keeps piling up, many folks have a hard time believing the storm has actually passed. Meanwhile, stocks just staged a quick reversal... And a rare signal tells us this is actually a great time to buy, despite what the headlines say.
"Do the research, come to your own conclusions, and stick to your guns," Whitney Tilson writes. If you want to outperform the market over the long term, you can't rely on luck... or even on intuition. You need to know exactly what works – and what doesn't... and you can start by mastering these three simple lessons.