Mom n’ Pop investors are throwing in the towel … Luke sees the “money-making opportunity of the century” … the phenomenon driving Luke’s bullishness … join Thursday for more details

According to Goldman Sachs, the market bottom could be close.

Last week, mom n’ pop investors moved $89 billion into money market funds – the most since April 2020.

Goldman sees this as a sign that investors are beginning to throw in the towel, which, historically, is an indicator that we’re approaching the bottom.

From an internal note at Goldman Sachs:

After opening up their Q3 quarterly statements over the weekend, retail has finally blinked. Capitulation is near. This is the last standing asset owner, who has not sold, [and] is moving money right now.

This is a massive move. Do not underestimate the significance of this new movement of cash.

For any readers less familiar, the term “capitulation” refers to that final “I can’t take it anymore” pain point when investors give up and liquidate their stocks. It tends to manifest as a dramatic surge of selling pressure that tanks stock prices in a violent drop.

This nod to capitulation mirrors the perspective of our hypergrowth expert Luke Lango, editor of Innovation Investor.

Here’s what Luke sees coming, factoring in the Fed, hopes of a dovish pivot, and capitulation:

No pivot coming in November. Once the market realizes this, we will take another leg lower, and the market will likely finally throw in the towel on hoping for a Fed pivot. 

Then, that’s when the Fed will actually pivot — when all hope seems lost.

We see the Fed hiking rates 125bps into December, as they’ve forecasted, and the SPX falling to the 3400 range.

At that point, the credit markets will likely be close to breaking, while the labor market will be on the verge of collapse.

Then, the Fed will finally come to the rescue in December 2022 like they did in December 2018.

No rate hikes in 2023. Massive risk-on rally.  

We’re still one good final crash in the bond, commodity, and stock markets before the Fed capitulates, and stocks stage an enormous comeback in 2023. 

As to how bad that final crash will be, Luke expects we could see the market give up another 10% or so as bulls throw in the towel. That would take the S&P to roughly 3,200.

But while this market pain has many mom n’ pop investors teetering on the verge of capitulation, Luke is eyeing the biggest money-making opportunity “of the century”

We just looked at Luke’s forecast for stocks as we move into 2023 – and clearly, it’s bullish. But “bullish” doesn’t begin to reflect the enormity of what Luke sees coming.

Here he is to explain:

Yes, I’m aware of all the problems the world is facing today.

Decades-high inflation. A U.S. Federal Reserve embarking on the most aggressive rate-hiking cycle in over 40 years. A war in Europe for the first time since World War II. The highest gas prices in decades. The highest grocery prices in decades. The biggest stock market crash since 2008…

But today, we sit on the cusp of arguably the biggest investment opportunity in the stock market… ever.

To understand why, let’s begin with investor sentiment.

As Luke points out, mom ‘n pop investors are terrified right now. This fear is behind the $89 billion that just flowed into money market funds last week.

In fact, the American Association of Individual Investors weekly survey found that for two weeks in a row, the percentage of bearish investors in America has outnumbered the percentage of bullish investors by more than 40%.

Back to Luke for context on this, and the takeaway:

That’s an unusually high number which marks “peak fear”.

Indeed, the net bull ratio has been this low only once before: In early March 2009, the exact same week stocks bottomed after the Great Financial Crisis!

Now, the skeptic could push back: “This isn’t any sort of proof that our bear market is over. In fact, you yourself see stocks falling another 10% from here.”

True – and that’s why Luke is grounding his market forecast in something else: revenues and earnings.

The tie between stock prices and earnings, Q3 earnings season, and a “divergence” anomaly

In the short-term, any number of market influences can impact a stock price – for better or worse. Given this, who really knows where prices will be tomorrow or next week?

But over the long-term, we have an indicator that’s about as good as it gets…

Revenues and earnings.

Back to Luke:

At the end of the day, revenues and earnings drive stock prices.

If a company’s revenues and earnings trend upward over time, then the company’s stock price will follow suit and rise.

Conversely, if a company’s revenues and earnings trend downward over time, then the company’s stock price will drop.

That may sound like an oversimplification. But, honestly, it’s not…

The historical correlation between earnings and stock prices is about as perfectly correlated as anything gets in the real world.

On Thursday, Q3 earnings season begins in earnest when the big banks report

FactSet is the go-to earnings data analytics company used by the pros. In its latest analysis of Q3 earnings, it profiled the earnings results from the 20 companies that have already reported as of last Friday.

It noted similar themes in the earnings calls with management: high labor costs, supply chain disruptions, and unfavorable foreign exchange rates thanks to the strength of the U.S. dollar.

In terms of how these headwinds will impact the entire universe of stocks this earnings season, FactSet reports that the S&P 500 is expected to report (year over-year) earnings growth of 2.4%. This would be the lowest earnings growth since Q3 2020.

From FactSet:

Both analysts and companies have been more pessimistic in their earnings expectations for Q3 compared to recent averages.

As a result, estimated earnings for the S&P 500 for the third quarter are lower today compared to expectations at the start of the quarter.

Now, this sounds bad for stock prices, right?

Traditionally, yes – the correlation between earnings and stock prices suggests the worse the earnings, the worse the stock price.

But there’s something else at work here…and it’s the foundation of Luke’s bullishness:

The phenomenon my team and I have identified has to do with this correlation.

In fact, it has to do with a “break” in this correlation – a break which historically only arises when recession fears are peaking, and which has produced the greatest stock market buying opportunities in history. 

Every once in a while, specifically, about once a decade, a rare anomaly emerges in the stock market wherein earnings and revenues temporarily stop driving stock prices.

We call this anomaly a “divergence”.

During these divergences, companies tend to continue to see their revenues and earnings rise, yet their stock prices temporarily collapse due to some macroeconomic fears.

The result is that a company’s stock price diverges from its fundamental growth trend.

Every time these rare divergences emerge, they turn into generational buying opportunities wherein the stock prices “snap back” to the fundamental growth trends.

Luke offers a handful of illustrations…

The Savings & Loans crisis of the 1980s nailing Microsoft’s price even while its revenues and earnings kept growing… the Dot Com Crash crushing Amazon’s price in the early 2000s though its earnings kept rising… the same thing in 2008, with Salesforce’s stock collapsing despite climbing revenues and earnings.

Luke says that following these divergences, Microsoft soared 40,000%… Amazon investors scored more than 20,000% gains… and Salesforce owners hit 10X returns in five years.

Returns like these are why Luke calls a divergence “the most profitable repeating pattern in stock market history.”

It turns out, this pattern is happening again right now for the first time in 14 years.

This Thursday at 4 PM ET, Luke is holding an urgent event called Zero Hour to present his research on this phenomenon

Here he is with details:

The more we researched these divergence windows, the more excited we became.

These divergence windows give you a real shot at turning $10,000 investments into multi-million-dollar paydays.

But here’s the most important part: Because these opportunities emerge out of fear in the markets – and because we’ve reached peak fear – my team and I have concluded that this ultra-rare investment opportunity is rapidly closing shut.

Join Luke this Thursday to learn more. I’m told he’ll even be giving away his number-one divergence stock to buy right now.

It’s a free event, but we ask that you reserve your seat in order to join.

Big picture, mom ‘n pop investors are beginning to throw in the towel, and Q3 earnings season could be bumpy – but join Luke on Thursday to learn more about how this could actually be a prelude to “the biggest money-making opportunity of the century.”

Have a good evening,

Jeff Remsburg