Wall Street's 'Big Dogs' Are Betting on a 'Full Bull'

We're near a 20-year extreme... Don't call an end to today's bull market just yet... Wall Street's 'big dogs' are betting on a 'full bull'... Today's market is likely healthier than you think... A one-click way to take advantage of the current boom in U.S. stocks...

Extreme bullishness is here...

And not just the usual bullish behavior... where everyday folks will chase stock prices higher and higher until there is no one left to buy.

We saw that in the late 1990s with the dot-com boom. Investors were bidding up shares of technology stocks day after day... sometimes resulting in 100% moves in a matter of days.

Remember, the technology sector alone rallied 250% in the final days of the late 1990s boom.

It's a level of confidence that defies reality... And investors start to throw caution to the wind.

Today, there are definitely more traders in the market than almost ever, and stocks have just recently returned to hitting all-time highs...

But I (Chris Igou) am seeing one important difference in the market from what we saw during the dot-com peak...

So before you get nervous that I'm predicting the end of the bull run, that's not the case...

This level and specific sort of excitement from a select group of investors is actually a good sign for stocks in the coming months... and maybe even years.

You see, the guys who are getting bullish aren't mom-and-pop investors... They aren't rookie day traders who are playing with fire for the first time (but that is certainly happening, too).

These investors are seasoned vets. They are the big dogs on Wall Street. And they see the writing on the wall... often better than most.

Today, Wall Street investors are making big predictions that could send stocks much higher from here.

We can see this in the recent monthly Global Fund Manager Survey from Bank of America.

The goal of the survey is to find out what the top brass on Wall Street thinks about the current market.

The survey reaches out to more than 200 mutual and fund managers around the globe. These managers have more than $600 billion in assets under management. And the survey gives us an inside look at how they might be investing that money...

Questions range from topics such as overall bullishness to the biggest tail risk for today's market.

When we look at these at a moment in time, it doesn't tell us much. But Bank of America has been doing this survey for decades. And when you look at the answers over time, it can be extremely useful.

The most recent survey was one of the most bullish on record...

It was even titled "The Full Bull" to mark the sentiment. With so many bullish results, the survey thinks we are getting close to what they call the "full bull"...

For example, one of the standout results this month was the percentage of fund managers that expect company profits to be higher in 2021.

A whopping 84% of those surveyed said they expect company profits to rise over the next year. That's the highest rating in 18 years.

Again, these bold predictions aren't a warning sign...

Similar bullish ratings like this in the past have been a big 'buy' signal for stocks...

The first time we saw this kind of agreement amongst managers was back in mid-2002.

Back then, stocks had been in a bear market for years. The economy and the stock market were struggling. But Wall Street fund managers were starting to get bullish...

By the middle of 2002, the majority of these managers were expecting company profits to bounce back. They knew the tough times wouldn't last forever.

Turns out, the ultimate bottom for the benchmark S&P 500 Index at the time came in October 2002. Stocks went on a multiyear bull run from there. You can see what I mean in the following chart, which shows the S&P 500 Total Return Index (dividends reinvested)...

We saw a similar story play out near the depths of the financial crisis. In early 2009, these same fund managers started to see the light at the end of the tunnel.

They were starting to expect that the worst was in the rearview mirror, and that companies would eventually recover from the crisis.

Again, they nailed the timing...

U.S. stocks bottomed in March 2009. The S&P 500 then went on its longest bull run in history, rallying more than 500% in total return to its eventual peak in February 2020. Take a look...

Extreme bullishness from these fund managers wasn't a sign of trouble ahead... In fact, it was an indicator of confidence in the current rally.

Today, we are dealing with a global pandemic that has devastated families and businesses around the globe. But with potential vaccines in the final stages of approval, this crisis will eventually pass as well.

That's the bet that fund managers are making right now. And they've been spot-on in past cycles. But this bullishness isn't the only positive note for the currently rally...

Today's bull market is in full force just about everywhere you look...

After a 60%-plus move higher in the S&P 500 since the March low, you might think the blistering uptrend is running out of steam... or that the ongoing move higher can't last. That's not the case, though...

Today's rally is strong. We aren't just seeing a few stocks carry the S&P 500 to new heights that's common at the end of a bull run.

Yes, the Alphabets and Facebooks of the world are in a strong uptrend... But that's a small slice of what's driving the current boom...

In the past few weeks, we've seen new highs in transportation stocks, small caps, financials, and more.

To get an even better view of this kind of strength, we can take a look at the advance/decline line.

My colleague Corey McLaughlin mentioned this last week in the November 23 Digest. He talked about how we use this indicator in our True Wealth research...

This is an indicator that our colleague and True Wealth editor Dr. Steve Sjuggerud has long used in his research and trading services...

It's a great gauge of market health...

Longtime readers are familiar with Steve's use of the "advance/decline" line. This is a way of measuring "market breadth"...

And Steve and his research team noted it prominently back in July, when they told subscribers that "the Melt Up was back"... even as we were (and still are) in a pandemic and the economy looked questionable (and still does).

In other words, the advance/decline line is a great measure of how widespread the current boom really is.

It looks at all of the stocks on the New York Stock Exchange. And when more stocks are rising than are falling, the index moves higher.

Today, the advance/decline line isn't just moving higher. It recently broke out to new highs. Take a look...

You can see the breakout in the chart above. It's the first time this index has hit new highs since January.

This is a powerful indicator...

Importantly, this index goes back 15 years. To get a better idea of what this means going forward, I looked at every time the advance/decline line hit a 12-month high since the index started... and what that meant for investors going forward.

Similar cases have been a big "buy" signal for investors. Buying after this kind of move typically leads to outperformance compared to a boring buy-and-hold strategy. Take a look...

The S&P 500 has returned almost 7% a year since this index started. But after the advance/decline line breaks out, your upside is even better...

Investors can expect to make roughly 9% gains over the next year following breakouts like today's. This might not be a huge spread in returns, but it tells you that the recent rally isn't on its last breath...

There's plenty of upside potential, thanks to how strong the market is today.

In short, you want to own stocks right now. While the market is up a lot since March, more gains are likely in the coming months.

The easiest way to take advantage of this opportunity is to own U.S. stocks...

Sure, you could just buy the S&P 500 and do OK...

But with fund managers highlighting a buying opportunity, and the current strength in today's rally, we know the odds are in our favor.

So instead of just buying the broad index, today's environment gives you a chance to really juice your gains... And you can do that with just a couple clicks of a button in your brokerage account.

The ProShares Ultra S&P 500 Fund (SSO) tracks the broad market with leverage. That means for every time the S&P 500 Index rallies 1% in a day, SSO will rally 2%. This extra leverage will help boost your gains as the bull market continues.

It's also important to know that leverage cuts both ways... If the S&P 500 falls 1% in a day, SSO will drop 2%.

You are taking on a little bit more risk with this fund. But there is a way to protect your downside risk while giving yourself a shot to juice your upside returns...

I'm talking about position sizing. A standard rule in investing is to never put in more than 4% or 5% of your money in any one position.

That way, if I'm wrong and U.S. stocks fall in the coming months, you can limit your downside risk in SSO.

In short, given today's setup and this flashing "buy" signal, I think that extra risk is worth taking to increase your upside potential.

If you're comfortable with the extra leverage, I encourage you to buy shares of SSO today.

New 52-week highs (as of 11/30/20): Analog Devices (ADI), BlackLine (BL), Cognex (CGNX), Crispr Therapeutics (CRSP), Curaleaf (CURLF), Gravity (GRVY), Green Thumb Industries (GTBIF), Renaissance IPO Fund (IPO), Jushi (JUSHF), MongoDB (MDB), Cloudflare (NET), Construction Partners (ROAD), Trulieve Cannabis (TCNNF), The Trade Desk (TTD), Take-Two Interactive Software (TTWO), ProShares Ultra Semiconductors Fund (USD), Vestas Wind Systems (VWDRY), Walmart (WMT), Zebra Technologies (ZBRA), and Zymeworks (ZYME).

In today's mailbag, feedback on our mailbag itself, more thoughts about Dan Ferris' pre-Thanksgiving Digest, and a note for Crypto Capital editor Eric Wade. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I have just joined this year. Really enjoy the newsletters; don't always agree with them but always refreshing. Also, great that you have subscribers comments both for and against in feedback. Nothing like an exchange of points of view. People need to see both sides. Well done!" – Paid-up subscriber Matthew F.

Corey McLaughlin comment: Thanks, Matthew. Glad you've found us and are enjoying the Digest. Welcome to the fun, and don't hesitate to write in again.

"I agree completely with Dan on the COVID situation. It depends on who you trust for your info and the trusted sources for me say, 'Get on with life before the control freaks ruin us all with these overkill solutions.'" – Stansberry Alliance member Greg D.

"It amazes me that the left [doesn't] think we can meet and visit at a safe distance with many friends and relatives... Reasonable precautions can be taken to make visits with friends very safe. These are the same people who think you should be arrested for swimming by yourself at the beach. This mentality will cause great harm to the people of this country and our freedoms." – Paid-up subscriber Homer B.

"I have to admit that I have never written to this newsletter before, but your pre-Thanksgiving note was so mind-bogglingly irresponsible that I felt I had to reach out and respond.

"It is very easy to rail against the 'nanny state' – no sane American adult wants to be treated like a child, and while I fundamentally agree with the Constitutional background and philosophical basis of that argument, the childish tantrum that accompanied the message was infuriating...

"I sit on the school board in my town, and we are wrestling with deep, difficult decisions which are always going to infuriate at least a segment of our population. There are no 'perfect' answers, and while it is true that there is a level of risk in every activity, there is no question that we treat different levels of risk differently.

"For instance, in my neck of the woods, we do not ask the government to construct levees or have laws about earthquake-proof construction – hurricanes and earthquakes are not high on the risks that we encounter. But should the government do nothing about levee management in New Orleans? Should there be no code about hardness of buildings on the San Andreas Fault?

"I suppose a strictly libertarian argument would be 'no' – let the free markets decide and let personal responsibility handle that, but if the response to personal responsibility is the following quote from your article: 'Here's what I'm doing tomorrow and through the rest of the holiday weekend...

I'm getting together with friends and family – as many as I want, even if it's more than 10. And I'm also making a special point to sing, shout, drink, eat, and be merry.'

"... and the outcome of that level of personal responsibility is that you infect friends and loved ones, who then infect others who did not take those calculated risks, who is responsible for that outcome?

"Recently there was a wedding in Maine that led to 177 cases and 7 deaths. None of the people who died from that incident actually attended the wedding. In other words, they paid the price for another citizen's irresponsible behavior.

"I am all for individual liberty, but freedom comes with responsibility, and if you want to advocate for individual liberty, the VERY NEXT SENTENCE should be about personal responsibility and taking care of your family, friends, and community. Otherwise, you are just encouraging the governmental overreach you claim to be against by showing how incapable we are of responsible behavior..." – Paid-up subscriber Brian C.

"With all the responses to Dan's Wednesday Digest I felt compelled to write in. Firstly the majority of the dissenters were coming at Dan from a feeling perspective not facts. We are being continually fed nothing but COVID numbers from the mainstream media without much Statistical back up (if it bleeds it leads). No one has asked how many people die every year in the U.S. before the pandemic.

"If you do some research you'll see many different facts that don't all agree... Perhaps if you're fearful of contracting COVID YOU need to protect yourself. I don't wish to cause harm to my fellow man, but I am not my brothers' keeper. Take Responsibility for YOURSELF. If you see someone without a mask, walk around him, keep your distance. But don't take the attitude that I'm responsible for you, or you'll be left with no Freedoms or Liberty. And you may as well be dead." – Paid-up subscriber Brian F.

"Please let Eric know I enjoyed his article ("How Bitcoin Goes to $1 Million") and agree 100%, as I got into crypto as a result of Porter's article last year. I think one thing that was lacking in his article, however, was the fact that blockchain technology could make our elections very, very safe and secure, which is what our country needs desperately right now." – Paid-up subscriber Patti D.

Good investing,

Chris Igou
Jacksonville, Florida
December 1, 2020