Editor's note: Now isn't the time to sit on the sidelines...
Despite volatility in stocks over the past few months, this market still has upside – and stocks still have room to run.
In fact, Michael Salvatore – editor for our corporate affiliate TradeSmith – says history shows you can still earn consistent returns amid this market chaos... no matter what macroeconomic factors are weighing on stocks.
In today's Masters Series, originally from the July 4 issue of the free TradeSmith Daily e-letter, Michael details how this year's resemblance to market cycles from 2020 and 2018 is a boon for investors...
Is It 2020? Or 2018?
There's nothing better than the start of a new month...
New months mean new monthly candles. And new monthly candles help us get a better look at the very-long-term trend.
Let's start on that. And let's also do some speculating on where stocks could go based on two key time frames and associated major macro-scale events...
First off, let's lay some groundwork for the comparison with 2020.
The monthly view of the S&P 500 Index shows us something fascinating. From a technical perspective, the tariff crash recovery is quite similar to the pandemic crash recovery...
In 2020, the S&P 500 fell by a third in the span of three months, peak to trough, before getting bought up aggressively and soaring to new highs over the following five months.
This year, the S&P 500 fell by a fifth in the span of three months, peak to trough, before getting bought up aggressively and sent to new highs over the following two months.
So 2025 saw both a shallower drawdown and a faster recovery than 2020. That makes sense. The pandemic was a vastly greater disruption to the world economy than President Donald Trump's tariffs... and so was the Federal Reserve's tremendous intervention back then.
One should expect the market to be more resilient now, especially those clued in to Trump's "Art of the Deal" style of negotiation.
Nevertheless, the market just experienced a shock event and a rapid recovery. That means we should look to 2020 as some kind of analog for what's happening now.
The blue bars in the upper right are a copy of the monthly candlestick data from June 2020 – two months after the pandemic bottom. In the 12 months that followed, the S&P 500 tacked on 20% gains.
That doesn't seem likely this time. Interest rates are still "moderately restrictive," as Fed Chair Jerome Powell puts it. Liquidity is rising, but nowhere near the rate we saw in 2020.
On the other hand, 2020 is still fresh in investors' memories. They recall what happened the last time stocks made such a rapid recovery. And one could argue that if we pulled it off this time around without massive monetary support, while we're about to enter a lower-rate environment, the case is just as strong for another big move in the next 12 months.
If that happened, the S&P 500 would trade well north of 7,500 by this time next year.
Now, let's talk about the less-fun black bars...
I selected that span of time based on when Trump passed his initial tax cuts in December 2017. For the next 12 months, stocks shed about 5% of their value.
As you're likely well aware, Congress made those tax cuts permanent through the "One Big Beautiful Bill Act."
Along with other parts of the budget reconciliation, the whole bill is estimated to cost the U.S. government more than $3 trillion (according to the Congressional Budget Office). For context, the Tax Cuts and Jobs Act of 2017 was estimated at the time to cost about $1.5 trillion.
So we've passed legislation that's anticipated to cost the government a lot of money and also disrupt some key industries – renewable energy and public health insurance. That could throw some wrenches in the works.
But 2017 was quite different from now in one other key way. Back then, the Fed was on a rate-hike spree that was meant to simply get rates back to normal after a decade at zero. That weighed on stocks as they adjusted to the new rate environment.
Today, we have a Fed that's tentatively playing with the idea of slowly cutting interest rates at about the same pace it rose them in 2018.
Once again, I don't think the next 12 months will look exactly like 2020 or exactly like 2018. Taking all these factors together, we might anticipate a "split the difference" result of about 7.5%. That would put the S&P 500 up near 6,700 by this time next year.
But let's zoom in and look at some seasonals...
Last month, I warned that over the past 20 years, June, not May, was actually one of the weakest months of the year. I wrote...
If you're looking for a month to sell in right now, you could do a lot better in June. SPY is up 56% of the time in June for an average return of -0.1%. When June is negative, SPY falls -3.5% on average.
There is a distinct seasonal summertime trend. It just doesn't start in May.
It starts now. And we should expect headwinds for stocks over the next few weeks.
Stocks decidedly did not fall in June. The S&P 500 was up 4.83% from May 30 to June 30 and notched a new high.
I was wrong, but I'll call that a good problem to have.
Where I wasn't wrong, however, was in the seasonal sector study. In that same article, I looked at which sectors had the best shot of outperforming in June...
Looking ahead, here are the seasonal returns by sector for the month of June:
It's not the prettiest sight.
Only 6 of the 11 SPDR sector ETFs have a track record of trading positive in June. And the top two best win rates are in relatively new ETFs, XLRE and XLC, so the data is less consistent.
For me, the best bet for June seems to be tech – at least from a momentum perspective.
And, well, let's look at the leaderboard for June. Technology takes it home, along with communication services and energy – both of which are among the top brass in terms of win rates and returns. Even health care and real estate managed to trade positive...
A few of the individual stock ideas from that issue worked well, and others didn't. Nvidia (NVDA), Broadcom (AVGO), and Netflix (NFLX) have all led the market, while Palantir Technologies (PLTR), ServiceNow (NOW), and Accenture (ACN) have all trailed it...
Most notable is NVDA's return. I showed at the time that when NVDA is positive, it tends to make a big move of about 12%. That's close to what happened this time around, too.
Still, it's important to remember that seasonality is not foolproof. It can help tilt you in the right direction, but we shouldn't treat it as gospel.
With this strategy, you'll be able to identify the best stocks to buy at their very strongest times of year based on their historical price action.
Although it's not an infallible approach, the results are more than worth it...
To building wealth beyond measure,
Michael Salvatore
Editor's note: TradeSmith CEO Keith Kaplan says we're approaching a major inflection point that will hit the markets on July 30. And he's not talking about a crash or a bear market...
What's coming could help you recover any losses you've incurred this year by embracing a more rapid-fire, data-driven style of investing.
That's why Keith is going on camera on July 22 to share a breakthrough way to pinpoint dates when specific stocks would shoot up before this market shift. Learn more here...