For generations, the month of October has had a frightful reputation for investors.

The incredible market declines of 1929 (which preceded the Great Depression) and 1987 (which featured a 22.6% decline in the Dow) happened in October. They are frequently cited as why we all worry about our retirement funds come autumn.

Well, the October we just closed helped cement the month’s bad reputation.

The S&P 500 had its worst month since 2010. The tech-heavy Nasdaq 100 fell almost 9%. Volatility has soared. Major market leaders like Netflix, Amazon, and NVIDIA suffered large declines. Just look at the sharp decline in Amazon:

 

Given what has happened, you might be wondering if this selloff is the start of the big bear market so many folks are forecasting. You might be wondering if right now is a time to pick up bargains … or a good time to sell your stocks and get cautious.

At times like this, I turn to legendary investor Louis Navellier for advice. Louis is looking to pick up bargains.

I asked him to share his thoughts on why the bull market not only is still alive but poised to reach new heights in 2019 and 2020.

I’m sure you’ll find his insights intriguing.

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First, let’s start with the real long-term driver of stock prices…

Earnings

Over the past week, I’ve repeatedly pointed out to readers that it’s very odd to see this type of selling pressure in the midst of the third-quarter earnings announcement season.

So far, third-quarter earnings have been stunning. According to FactSet, nearly half of the S&P 500 companies have posted third-quarter results, and they’re averaging 22.5% annual earnings growth.

I was especially happy to see how Boeing (BA) and Twitter (TWTR) reacted after posting better-than-expected sales and earnings while providing positive guidance, and I was especially excited about the huge (86.1%) third-quarter earnings surprise ($5.75 per share vs. a consensus estimate of $3.09) for Amazon (AMZN). I am not worried that its sales were slightly below some analyst estimates (and I believe Amazon remains a great buying opportunity on dips).

Buybacks

Aside from the fantastic earnings news, we are still in the middle of a series of stock buybacks. Between record earnings, tax cuts and all the money that companies are bringing back home that was stashed overseas, companies are flush with cash.

And “for the first time in 10 years, buybacks are garnering the largest share of cash spending by S&P 500 firms,” according to chief Goldman Sachs’ U.S. equity strategist David Kostin. According to Goldman Sachs, buybacks rose by nearly 50% (to $384 billion) in the first half of 2018.

And $754 billion in new stock buybacks have already been authorized this year, according to the New York Times. That’s up 80% from the same period in 2017.

Stock repurchases could reach a record $1 trillion by November, according to Trim Tabs.

And those buybacks will continue to fuel the market’s next leg up. In fact, companies are buying back so much stock that the number of shares available in the stock market is actually shrinking.

The number of S&P 500 shares has shrunk by 7.7% since the start of 2011.

Buybacks Are So Big They Are Shrinking the Stock Market

And it’s even higher for Dow stocks. 90% of all companies listed on the Dow are buying back stock.

An average of 14.7% of the outstanding shares in the Dow Industrials have disappeared in buy-backs in the last decade, according to Bespoke Investment Group.

If 15% of the homes, apartments and condos in New York City disappeared, what do you think would happen to the price of the remaining properties? Right … prices would go up because the same amount of people are still trying to buy the smaller number of properties available.

And the same thing is happening right now in the stock market.

Plus fewer outstanding shares also mean higher earnings and dividends per share …

Which means those stocks get even more attractive to new investors who pile in and that drives prices even higher.

Record trillion-dollar buybacks and the best corporate earnings we may ever see in my lifetime alone would already be enough to fuel the next leg of this bull market.

Economy

And let’s not forget that the fundamental forces driving the market continue to be very positive. There is no doubt that domestic companies are thriving in a strong U.S. economy. The U.S. achieved 4.2% annual GDP growth in the second quarter. And this morning, the Commerce Department issued its preliminary estimate for the third quarter: GDP growth was an annual rate of 3.5%. That means corporate profits should remain very healthy.

I like to describe the current conditions as a “Goldilocks” environment. Simply put, we’re in a stable interest rate, low inflation environment that’s fueling economic growth, stock buybacks and earnings growth. And that combination ultimately supports a higher stock market.

Last month, the Federal Reserve voted unanimously to increase key interest rates and removed the word “accommodative” from its Federal Open Market Committee (FOMC) statement. The federal funds rate now stands between 2% and 2.25%. Fed Chair Jerome Powell was also the picture of calm and transparency, reassuring Wall Street that the U.S. economy would grow without excessive inflation.

Many economists are now forecasting a fourth interest rate hike in December. But here’s what they’re missing: International capital is flocking to the higher interest rates in the U.S., rather than other reserve currencies like the British pound, Japanese yen and euro. That’s because the U.K., European Union and Japan are not expected to raise key interest rates any time soon.

In addition, the Fed is closely monitoring inflation and market rates. The Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index is forecast to remain at 2.1% for the next several months. So, the Fed is not expecting inflation to accelerate.

Treasury bond yields have meandered higher in recent weeks, as the bid-to-cover ratios on Treasury auctions declined to 2.4, down from 2.8 a month ago. Typically, the smaller the bid-to-cover ratio, the more likely that Treasury yields will climb higher. The Fed will be closely monitoring Treasury yields, since it doesn’t want short-term interest rates to rise too much and invert the yield curve.

Overall, the Fed is looking for stable interest rates and moderate inflation to continue to boost GDP growth. The Commerce Department recently announced that second-quarter GDP grew at a 4.2% annual pace. And if this pace continues, more than 3% GDP growth in 2018 is a very real possibility.

So, we remain in a Goldilocks environment, with low interest rates, strong GDP growth, moderate inflation and reasonable stock valuations. And in this environment, the stock market is poised to climb higher.

Optimism

Small business optimism surged in August to the highest level ever recorded.

“Today’s groundbreaking numbers are demonstrative of what I’m hearing every day from small business owners — that business is booming,” said NFIB President Juanita D. Duggan.

And that optimism is translating to increased business spending.

S&P 500 companies spent $341 billion spent on capital expenditures in the first half of the year. Capital expenditures are rising at the fastest pace in 25 years. R&D spending is also up 14%.

Some of this optimism is thanks to Republicans’ push for deregulation, but most is coming from tax cuts. The big corporate tax cut has been a huge boost to the bottom line. All that repatriated cash is flowing through to buybacks, dividends, business spending and wages.

And that’s impacting the last big economic and market driver … consumers.

Consumer confidence is soaring. It hit an 18-year high in August-just shy of the all-time record. And they are spending like mad.

Retail sales are robust at both the high end AND the low end of the spectrum. Wal-Mart just had its best earnings in 10 years. Target’s CEO says the current consumer environment is the strongest he’s seen in his career. The company is seeing unprecedented growth in foot traffic and same-store sales.

It’s no surprise consumers are confident and spending … personal income is up for the third year in a row. Median income is up to $61,400 in 2017, according to the Census Bureau.

Wages are starting to move, with companies like Amazon and Target raising their minimum wage to $15. 401(k) and IRA balances are up.

For the first time ever, the average 401(k) account balance at Fidelity hit six figures, coming in at $104,300.

Unemployment is just 3.9%. And it could drop to just 3% over the next year. We are now on track for the strongest year of GDP growth since 2000.

“We’re crushing it,” says top Trump’s director of economic council, Larry Kudlow. At a recent speech, he confirmed what I’ve been telling you … “Capital is flowing here in huge quantities.” Factory orders, production, and hiring are all up … Durable goods orders are surging on heavy consumer and business spending …

Job growth surged to its highest level in 7 months in September. “This labor market is rip-roaring hot,” according to Mark Zandi, chief economist at Moody’s.

I hope the picture here is clear … now is not the time to get out of the stock market. The earnings environment is incredibly strong, stock buybacks will continue, economic data is very positive, and small business and consumer optimism continue to find new peaks.

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Luis here again, and it’s no surprise given all of the above that in this environment, investors should treat any dip in stock share prices as an opportunity to strengthen positions in the stocks they favor while prices are at a discount.

It’s also a great time to review your “watch list” — the stocks you wish you had bought earlier that you monitor for an opportunity. Given the strength of the market and the overall economy, any dip right now is a new chance to buy.

To a richer life …

Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com

P.S. If you want to hear more from Louis about a great way to make money regardless of market conditions, click here for a video where explains his method for finding breakthrough stocks