Be ready for short-term volatility … why a longer-term mindset is necessary … a new tailwind from banking deposit data
The next four months could be volatile. But let’s jump straight to the takeaway …
Assuming you’re in quality stocks, don’t get shaken out.
As we noted in yesterday’s Digest, there’s plenty that one could worry about between now and the end of the year …
A coronavirus resurgence … chaos surrounding the presidential election … an economic recovery that stalls out or even reverses … a reignition of U.S./China trade tensions …
Any of these variables could result in a sharp decline in the stock market.
***However, the degree to which you fear these unknowns reveals the investment timeline you’ve chosen to focus on
If you’re a short-term investor or trader, then anxiety today is understandable. The issues we just noted are very real and have the potential to move the investment markets in the coming weeks and months.
But if you’re a long-term investor (5+ years) and you’re nervous today, perhaps you need a reminder that the far greater threat to your portfolio isn’t from the immediate risk at the door, but rather, is from the fear that shakes you out of the market, decoupling your portfolio from long-term gains.
To illustrate, look at one of today’s most explosive stocks, Apple.
From early fall 2012 through late spring 2013, Apple investors suffered a 44% decline.
A short-term mindset — focused on the pain of that drawdown — could have easily resulted in an investor giving up on the tech giant.
After all, psychologically, how many of us are able to breeze through a near-50% drawdown with no tossing-and-turning at night? Yet, had such a sale happened, we all know the long-term wealth-creation that would have been forfeited.
Below, we show Apple’s climb from the same 2012 starting date through yesterday.
As you can see, the 44% pullback (circled) appears rather insignificant in the context of Apple’s gains since.
This issue of “focus” points us toward a key investment-takeaway …
***“If you want to get rich, you have to focus on what will happen, not what is happening right now”
That quote comes from our thematic and technology-investment expert, Matt McCall. It’s from his most recent issue of Investment Opportunities.
For newer Digest readers, Matt’s goal is Investment Opportunities is to identify the major trends that are re-shaping our world, and by extension, the investment markets — think 5G, artificial intelligence, and precision medicine.
He looks to find the investing implications of these trends and ride them higher for years.
In Matt’s September issue, he recognizes the unknowns in the market today, but reminds his subscribers that a long-term perspective and patience is required for massive wealth generation.
While I agree with Matt’s sentiment, I find it a bit ironic since Matt has been leading his Investment Opportunities and Early Stage Investor subscribers to a series of triple-digit winners since the late-March market lows — a time-frame most investors would consider “short-term.”
Regardless, regular Digest readers know what’s behind Matt’s bullishness — in a word, technology.
The cutting-edge breakthroughs we’ll see this decade will drive massive wealth creation as they transform our world and day-to-day lives.
Yet in Matt’s most recent issue, he points toward a new reason he’s bullish. And this one is actually more likely to help support the stock market in the relative near-term.
So, today, let’s look at the latest reason why Matt says we’re in the “Roaring 2020s,” and why he has one, critical message for investors:
THE ROARING 2020S ARE HERE … AND YOU CANNOT SIT ON THE SIDELINES!
***The mountain of cash not yet invested in the market today
In profiling the Roaring 2020s, Matt has mostly focused on the technological advancements themselves. How they will improve lives, make things easier, more convenient, and so on …
But a marketplace consists of both buyer and sellers.
So, while Matt has focused on the amazing products and services that the sellers will bring to market, what’s been less discussed is the economic shape of the buyers.
Yet this variable is critical. After all, a healthy consumer who is spending money is required for a company to enjoy the profits that drive stock market gains.
With this in mind, what’s happening on the buy-side of the economy today — especially in light of coronavirus lockdowns?
As most of you know, I’m a numbers guy …
… I want to show you one number that could be the most important factor for stocks in the next 12-24 months.
It’s total checking account deposits in the United States.
Probably not what you were expecting, is it?
The chart above shows how deposits rose from the mid-1970s to the mid-1990s before dipping in the early 2000s.
The last decade saw a large increase, from about $800 billion to $2.3 trillion. Then COVID-19 hit, and the economy basically shut down.
The government started sending out stimulus checks (Phase 2 on our recovery road map), and suddenly cash in checking accounts surged to $3.6 trillion.
That’s a 56% jump in less than a year.
The $1.3 trillion increase in the last few months nearly matched the $1.5 trillion increase over the prior 10 years.
Matt then draws readers’ attention toward the shaded bars in the chart.
He notes how each recession saw checkable deposits grow or at least stay stable. And each time, stocks rallied afterward.
In fact, Matt tells subscribers that the biggest moves in stocks over the last 35 years came after the 1990, 2001, and 2008 recessions.
Back to Matt:
The takeaways here are that checking deposits increase during recessions, and then stocks rally after the recession is complete. And not only does this time fit the mold, it does so with gusto.
There is so much money on the sidelines that will make its way into the economy and the stock market …
This leads to the trickle-down effect. Hundreds of billions (if not trillions) of dollars will be spent on goods and services.
***The Fed has just greenlighted additional growth
In his issue, Matt then shifts gears, pointing toward the Fed and its historic change in its view of inflation that came two weeks ago.
After explaining how the Fed is now open to letting inflation move above 2%, Matt draws out the takeaway for investors:
… the Fed is telling us that it has no intentions of raising interest rates anytime soon, and that it will be as accommodative as possible to help the economy recover from the complete shutdown.
Historically low interest rates coupled with record amounts of money in checking accounts can only mean one thing — a boom is coming!
And by boom, I mean an economic boom.
Combine that with advancements in our hypergrowth trends transforming the world and you have the recipe for a historic melt up of stocks that could last for many years.
It’s just another reason why I believe this decade will become the best ever for investors.
***Be emotionally prepared for what happens in the near-term, but keep the emphasis on the long-term
Circling back to the top of this Digest, investors need to be ready for more volatility as we wrap up 2020 — perhaps most of all here in September. If we go by historical averages since 1950, September has been the worst-performing month for stock returns.
But if you have a longer investment timeline, then be deliberate about where you’ll direct your focus.
On this note, I’ll give Matt the final word:
It’s easier to predict what will happen further down the road, to take what we do know and make a highly educated guess as to where stocks should be in a couple of years.
It’s easier because we focus on world-shaping trends that will continue to grow in the face of all the unknowns …
I’ll repeat what I said earlier: If you want to get ahead or get rich, focus on what will happen, not what is happening right now.
Have a good evening,