Three reasons why this bull market isn’t dying, but could actually be gearing up for another massive leg higher
“What will the stock market do in 2020?”
If you Google that question, how many results do think pop up?
As an interesting comparison, the phrase “what should I buy my spouse for Christmas?” generates only 44% of that.
(Even more interesting is the fact that “what should I buy my spouse for Christmas?” generates far fewer results than “what should I buy my dog for Christmas?”)
Market forecasts are everywhere this time of year. If it were up to me, every person offering a forecast would be required to provide all their past predictions, along with how the market actually performed over that period. I suspect if that was a prerequisite, we’d see the number of market forecasts plummet toward spousal-gift-search levels.
One analyst who would pass the “past predictions” test would be Louis Navellier, editor of Breakthrough Stocks. As one example why, back in 2017, while the popular position was “stocks have peaked and will hit a ceiling at 20,000,” Louis believed the markets had plenty more juice. Sure enough, the Dow pierced 24,000 later that year.
More recently, we could look to the market volatility from earlier this fall. While the bandwagon was calling for a major market correction, Louis continued to encourage investors to stay invested, predicting more gains to come.
To illustrate, a Digest from early September featured Louis saying:
Simply put, we remain in an ideal environment for stock appreciation and every dip should be viewed as a buying opportunity … And we can go along for the ride …
He went on to discuss the then-recent drama surrounding the inverted yield curve, concluding with:
On TV, the talking heads often make this seem like a doomsday omen for the stock market. But in fact, it’s just the opposite! It’s my number one reason to lock and load with the best U.S. stocks now.
The past three months have proved him right.
Given Louis’ track record of prescient market calls, I pay more attention when he talks forecasts. Fortunately for us, last week, Louis provided some thoughts on 2020.
Yet again, while many analysts are growing bearish (easy to do after volatility like yesterday), Louis is bullish. In fact, he doesn’t think this bull will stop before we hit 40,000. That’s nearly 50% more gains.
What’s behind this growth? Let’s find out in today’s Digest.
***A Fed that wants to sustain growth, and low Treasury yields
The first bullish tailwind Louis points toward is the combination of the Fed and Treasury yields.
All along, the Federal Reserve has played a major role in sustaining this bull market … So, the Fed has been crystal-clear that it “will act as appropriate to sustain the expansion,” as Chairman Jerome Powell put it this summer. As long as the Fed stays that course, each move will help fuel the market’s breakout to Dow 40,000.
But what’s happening with interest rates is much bigger than any single rate cut. Even when the Fed was attempting to prod rates higher (to stave off inflation), the 10-year Treasury yield collapsed, as you see here:
Now, what exactly is the significance of these low Treasury yields? How does this support the stock market?
Well, Louis explains that at current levels, the 10-year Treasury is yielding roughly the same as the average S&P stock. So, as logical would follow, this would mean that around half of S&P stocks are now putting more income in investor-pockets than bonds.
This is inconsistent with the traditional market dynamic of “stocks for growth, bonds for income.”
Here’s Louis for the takeaway:
Every money manager knows that you need income to smooth out your portfolio returns. If bonds don’t provide it, the “smart money” is more than happy to look for yield on Wall Street.
***Capital flight from negative yields in Europe
For the second tailwind behind Louis’ belief that this bull will push the Dow to 40,000, let’s turn toward the turmoil in Europe.
If you think it’s hard finding meaningful yields today here in the U.S., count your blessings you’re not in Europe.
As you can see below, just over half of all European government bonds now come with negative rates.
In other words, you lend the government $100 … they lock up your money for a few years than pay you pack only $95.
How’s that for generating income?
After noting how Austrian and French 10-year government bonds just fell into negative territory for the first time ever, Louis describes how European investors are scared. Politically, there’s a great deal of unrest, currencies are weakening, bond yields are dropping, which is all leading to foreign bond investors looking for a respite from the chaos.
Much of that global capital flowed to U.S. Treasuries, but with those yields falling, too, it’s flowing to U.S. stocks as well.
So, it’s not just U.S. investors buying stocks, we can throw global bond investors into the mix as well.
***The U.S. economy is an oasis of strength amidst global weakness
The third factor Louis is looking at is the strength of the U.S. economy:
Right now, the United States is enjoying its longest economic expansion in history, as you see in the chart below. It remains one of the strongest economies around.
With the 2020 election on the horizon, President Trump is going to be as supportive as he can. His highest approval ratings are for his handling of the economy – and he’s up for a second term.
Louis notes how Trump will likely spend the next year aggressively promoting the U.S. economy. That will include keeping the pressure on Fed Chair Powell to maintain low rates.
***But what about yesterday’s 400-point selloff? Is this the start of a repeat of last December’s flash-bear market?
Yesterday, the markets tumbled on news that President Trump suggested he may choose to delay a trade deal with China until after the 2020 presidential election.
Beyond that, apparently, the White House still plans to move forward with the tariffs on Chinese goods scheduled for December 15. This comes despite the recent alleged progress toward a phase one trade agreement.
Yesterday, Louis spoke to these issues. After recapping the cause of the market drop for his subscribers, he wrote:
However, I’m not concerned one bit …
The truth of the matter is there’s a lot to look forward to. In November, the S&P 500 broke through 3,000 and hit 13 new closing highs. The S&P 500 made 26 new highs this year, so half of those highs were in November alone. Plus, small-cap stocks soared on the early January effect and light trading volume. Once trading volume picks up in the New Year, their performance will likely be even stronger.
The bottom line: There’s no need to worry right now.
Markets will be volatile. That’s simply their nature. But let’s not allow days like yesterday to distract us from the many sources of strength pushing U.S. stocks higher.
Yes, this bull will eventually end, but if Louis is right, we have plenty more gains to come until we reach that point.
Here’s Louis with a sum-up:
The truth is we have one of the strongest economies on the planet. We’re enjoying the longest economic expansion in U.S. history, as I showed you earlier. And we have two powerful forces hellbent on keeping the party going: a supportive Federal Reserve and our “Cheerleader in Chief,” President Trump.
Those extremely powerful forces are coming together to help fuel another massive market breakout that will have us at Dow 40,000 in no time.
***Before we sign off, a quick congratulations to Louis’ Breakthrough Stocks subscribers
Less than a month ago, on November 8th, Louis recommended his Breakthrough Stocks subscribers purchase Enphase Energy, Inc. (ENPH). Enphase is a semiconductor company that is vital to the solar energy industry since it makes microinventer systems.
In short, Enphase has exploded in recent weeks, up 33% as I write Wednesday morning, as you can see below.
Of course, this isn’t a surprise to Louis’ subscribers who noted ENPH’s score in Louis’ Portfolio Grader:
If you missed these gains, Louis believes there’s more upside to come. He’ll be talking about Enphase in his Breakthrough Stocks December Monthly Issue this Friday. You can click here to subscribe today and get more details later this week.
Congrats to all the Breakthrough Stocks subscribers for a nice, early pop out of the gate. Look for more to come.
Have a good evening,