Now's Not the Time to Argue With the Market

I make it a point not to argue with the market...

Sure, I've got my thoughts on what should happen. I do my homework to come up with my own expectations. But at the end of the day, if the market tells me I'm wrong, I listen.

That's the only way to survive as an investor. If you fight Wall Street, you'll go broke waiting to be right.

That's important today because of a rare disconnect we're seeing...

We're currently approaching full-scale war with Iran. The price of oil has spiked by $30 a barrel in just a couple months. And market headlines are filled with fear and existential threat.

Despite all of that, the S&P 500 Index is just 2.6% below its all-time high. The market is literally telling us not to worry... But hardly anyone is listening.

The operation in Iran is new. But the disconnect is a continuation of what's been happening for months...

On one hand, if you ask Main Street, the economy is in a terrible place. Consumer confidence dropped to a multimonth low in January. Stocks were trading at all-time highs when that happened... And again, we're barely below highs now.

So, which should we trust... Wall Street or Main Street?

History tells us we should trust the market. And right now, though it might sound surprising, this rare setup is pointing to a double-digit rally for stocks in the coming months.

Stocks Soared While Consumer Confidence Fell

Disagreement between Wall Street and Main Street isn't abnormal. The stock market is just a snippet of the full economy. So Main Street's outlook won't always align perfectly with how stocks are performing.

Still, what we saw recently is rare. Again, consumer confidence fell to the lowest level since the tariff scare last April. And this happened at the same time that stocks were hitting new highs. That almost never happens.

To measure consumer confidence, we're using data from the Conference Board...

Each month, this organization asks regular folks how they feel about the economy. The January data showed the lowest level of consumer confidence in months. And it was one of the lowest readings of the past decade. Take a look...

As you can see, January's consumer-confidence level was only slightly higher than it was during the tariff panic and the worst of the pandemic. And while that's still nowhere near financial crisis levels, Main Street is clearly not optimistic about the economy.

Again, this is odd... because the pessimism showed up as stocks were soaring to new highs. These two things don't happen together often.

To see what to expect, I looked at each time consumer confidence hit a new six-month low while the S&P 500 Index was at an all-time high. That has only happened seven other times since 1967. Here's what happened next...

When the market and Main Street disagree, you should trust the market.

The S&P 500 has grown 7.7% per year since 1967. But it does much better in the rare situations when the trend is up and consumer confidence is down.

Similar setups led to gains of 2.8% in six months and 10.5% over a year. That's healthy outperformance over a full year. Plus, stocks were higher a year later 71% of the time.

This proves why you don't want to argue with the market.

You can find plenty of reasons to worry about the future right now. We got a lot of new reasons in recent weeks: a new war... spiking oil prices... and a rash of uncertainty around how any of this ends. And yet, the market isn't crashing. We're about 2.6% below all-time highs.

Things could get worse from here. They always can. But the market isn't panicked... So why should you be?

The simple truth is that when Wall Street and Main Street disagree, you want to listen to Wall Street. And it's telling us that this bull market isn't over.

Good investing,

Brett Eversole